Last week, we discussed taking your company’s projected growth into consideration when deciding to buy or lease a commercial property. This week, we’ll address the buy/lease decision from the standpoint of cost effectiveness.
An important factor to consider is up-front cost. Buying involves higher up-front costs than renting. In most cases, renters simply cover the security deposit, utilities and monthly rent. Meanwhile, buyers are responsible for a down payment, mortgage and other costs such as the appraisal, inspection and loan fees.
If your business is new or lacks capital, renting can ensure that you don’t spread your financial resources too thin while building your business. However, if you have the necessary capital, those up-front costs can serve as an investment that pays off long-term when you eventually sell the property.
Another important factor is whether a long-term or short-term solution will best meet your real estate needs. If the long-term vision for your business is not well defined, renting may be more cost effective because it gives you the time and flexibility to define long-term needs and pay lower costs if you decide you need a different property.
If you have a clear vision for your company in the years ahead, buying often makes more sense. Instead of paying rent, your business has an asset that builds equity as you pay the mortgage.
When buying, it’s important to make sure you choose a property that gives you enough space to meet your long-term growth. That’s why many commercial buyers purchase property with more space than they need currently. This also gives you the opportunity to rent the other space for added income.
The decision to buy or lease is an important choice for any business owner. A real estate professional can help determine which option works best for you. A professional can help you estimate how much capital would be necessary to buy a property that meets your needs, or which properties have the best opportunity to yield large profits over time.