Should You Buy or Lease Your Commercial Real Estate Space?
As a small business owner, you may be tempted to just purchase the real estate you need to set up your business. You may choose to purchase real estate that can handle your current size or purchase more than you need so you are prepared for future growth. However, small businesses typically have tight cash flows and margins initially. So leasing your real estate space may be an option you should consider. These are the things you should consider before you buy or lease your property.
Small businesses tend to have limited finances, so if you can’t afford to purchase property, you may choose to lease some commercial real estate. Leased property typically only requires an initial deposit, inspection, legal fees, and one to two months of rent, whereas purchasing property involves a large down payment, closing costs, and any fees you encounter while doing your due diligence.
You also gain tax advantages by leasing property because your lease payments, taxes, utilities, insurance, and maintenance are all fully tax-deductible.
In addition, when you own property, you take on the liability for anything that happens on it. For example, if anyone is hurt or the facilities need repairs or maintenance, you are on the hook if you own the property. However, if you lease your space, your landlord takes on these liabilities, which can save you significantly.
Leasing a property increases your flexibility because you can sign a long-term lease at a lower rate without tying up a significant amount of your money in real estate. Also, although property markets are relatively stable and most often real estate increases in value, there are times when it loses value.
When you purchase real estate, your monthly payment builds your equity in an asset that also increases in value. This property can then be sold or refinanced, giving you leverage. Your business also benefits by increased valuation based on owning real assets.
Owning your property gives you complete control over what you can do with it. Not only can you change or modify the property in any way you choose, but you can also lease all or part of your commercial real estate to other businesses. If you occupy more than 51% of your space, you can rent the rest of your space out, creating an exceptional income property. If you lease space to restaurants, retailers, and offices, you also gain foot traffic, drawing new customers to your business as well.
Your loan interest, depreciation, and other mortgage expenses are also tax-deductible, reducing your tax burden.
Be sure to do your due diligence before making your property purchase or lease decision. Contact Charis Commercial Capital today to learn more about our equipment financing and leasing packages.