Buy or lease? It’s a major decision that many small businesses face.
As enterprises evolve, so does their need for space. And while you’ve surely heard of the three most important considerations in real estate – location, location, location – it’s also essential to understand the various pros and cons of buying versus leasing commercial property. As with all things in entrepreneurship, there’s no one right answer for everyone – your choice will depend on your company’s specific goals and capacities.
To help get you started, here are some advantages and drawbacks to consider.
Buying Commercial Real Estate
Owning your own property has a number of benefits, but nothing in business comes without a price.
- You’re able to build equity, which can secure low-interest loans down the road.
- It can be a sound long-term investment if the property increases in value.
- You may be able to take advantage of tax breaks for annual depreciation and interest.
- It eliminates your exposure to rental market fluctuations.
- Your monthly costs are generally more predictable.
- You can adapt the property to suit your firm’s particular needs and goals.
- You can lease out extra square footage to establish a secondary income stream.
- Your up-front expenses are often higher, including a down payment and closing costs.
- You will likely have less liquid cash available for other essential expenses.
- If your property value depreciates, you may have a capital loss.
- You’ll be responsible for all maintenance, which costs both money and time.
- You have additional legal responsibilities, like liability insurance.
- You may not require all the space that many commercial properties offer.
- You have to consider zoning and other restrictions if you wish to expand.
Leasing Commercial Real Estate
This can be a more flexible and affordable option, particularly for newer firms, but it has its downside.
- It might be easier to qualify for a lease than for a mortgage.
- You may be able to occupy a site in a prime location that would be too expensive to purchase in.
- You may have more freedom to grow and downsize according to cycles and trends.
- You can retain liquid capital and keep your lines of credit open.
- You may be able to deduct rent payments as a recurring business expense.
- At the end of the lease, you can reassess and decide whether to stay or relocate.
- You usually won’t have to pay for repairs and maintenance.
- You have less control over costs and market availability.
- Leases may be costly to renew, and you can’t always predict the percentage increase.
- If you close or refocus your business, you’ll have to continue paying rent or locate a subletter.
- You might have to relocate at the end of your lease.
- You will probably have to pay a security deposit plus upfront brokerage and attorney fees.
- Depending on your particular lease terms, you may not be able to sublease unused space.
- If you make lasting improvements to your space, the property owner keeps the benefits.
Helping Your Business Grow
Whether you need a new storefront, more office space, a bigger manufacturing facility, or something else, consider Nu Direction. Your small business can receive instant preliminary offers and affordable loans in as little as one week. Learn more and apply today.
The information contained herein is for general informational purposes only and does not constitute tax, legal, or business advice.
Brought to you by Nu Direction Lending, a digital-first business lender that was formed and is funded by credit unions. To learn more about term loans for your business, visit nudirectionlending.com or contact us by email at firstname.lastname@example.org or by phone at 866-354-7151.
Nu Direction Lending is a digital-first business lender that was formed and is funded by credit unions. We combine the speed and convenience of online lenders with the personalized touch of the local credit unions who help fuel our local economies.