Are you a business owner that’s trying to make the decision between buying vs. leasing commercial property for your business?
There’s no “correct” choice, as both buying and leasing have their pros and cons associated with them. Whether you choose to buy or lease commercial property largely depends on your personal situation and finances in the business.
Let’s take a look at the upsides and downsides to both!
Commercial Property Buying Basics
Let’s start off by looking at the pros and cons of buying commercial property.
If you want to buy office space for a doctor’s office or another medical business, speaking with healthcare real estate brokers can help you make the right decision.
In the meantime, here are a few general tips to keep in mind about buying commercial property.
The Upsides of Buying Commercial Property
You’re building equity in the property. That monthly mortgage payment goes right back into the building that you own.
You can get a tax break. Although you can not write off your monthly mortgage payment as a business expense, you can write off depreciation, mortgage interest, and property taxes as business expenses.
Your asset will probably appreciate. In general, real estate of any type tends to appreciate in value as the years go on. If you ever decide to sell the property, you will most likely be able to make back your money (depending on the real estate market at the time).
The Downsides of Buying
You might have difficulty qualifying for financing. The process for getting a commercial property loan is different than for getting a private home loan, and the requirements are much stricter.
You’ll need to pay a lot of money up front with the downpayment. While residential homebuyers can often get home financing with down payments as low as 3% of the purchasing price when you are buying commercial property you are usually required to pay at least 20% in downpayment.
You’ll have more responsibility. It will be on you to deal with repairs or handyman issues around the property. As the owner, you can also be held liable for any injuries or damages that happen on the property.
The Lowdown on Leasing Commercial Property
Buying a property isn’t the right decision for every business owner. If your business needs a physical location, but you can’t buy property right now, then leasing space
The Upsides of Leasing a Building for a Business
You won’t have to pay a downpayment. That means much less money up front!
You don’t have to worry about repairs. The landlord will be responsible for fixing things for your business. However, depending on the attentiveness of your landlord, this could be either a pro or a con!
You can get a tax break, because you can deduct your monthly lease payment as a monthly business expense. Utility payments for the commercial property can also be deducted as a business expense.
You have more flexibility. With a mortgage, you’re locked into that property until you sell it. With a lease, you are legally able to leave as soon as the lease is up.
The Downsides of Leasing
You might end up paying rent that’s higher than the average mortgage.
Your rent could go up at any moment. You’ll be left at the mercy of your landlord here.
You won’t build equity. Unless you get a lease-to-own commercial property, you could end up paying rent payments forever without ever owning part of the property.
The Bottom Line
Ultimately, the choice between buying and leasing commercial property is personal to you, your business, and your finances.
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