Buying vs. Renting Commercial Building

Perhaps the most immediate concern of a business owner is how purchasing vs. leasing affects cash flow. How much will it cost to purchase a building compared to leasing a building or space, and which is the most effective strategy for my bottom line? Our answer? Well….it depends.

If you decide to lease, you will save money on upfront costs. While entering a lease likely requires an application fee and a sizable deposit, you’re able to avoid the down payment required to buy. In addition to saving on these initial costs, you will also avoid the cost of building maintenance over time, which is the responsibility of the facility owner. These savings can then be reinvested in company resources or kept on hand for emergencies.

If you decide to buy, however, you’re not only making an investment on your current prospects, but also the longevity of your business. While buying requires a larger investment up front, it also substantially reduces costs down the road. When a lease term comes to an end, rent often increases upon signing a new lease.

By buying your own commercial property, you’ll be able to avoid those rent hikes, and along with a fixed-rate loan, ensure the same monthly payment on your building. Additionally, you can eliminate any monthly payment on your building once your mortgage is paid off. If your facility is large enough, you might consider renting out any unused space to another company. This could be a considerable boon to your bottom line and give you the financial freedom to expand, hire new employees, or pad your retirement fund.

But if your goal is creating long-term value, buying a commercial building is the superior option. Here are just a couple ways that buying creates value for the owner:

• Equity: Your building could very likely gain value over time. As you continue to pay off your loan, you will build equity in your building. Combine that with ownership of the land in an area with increasing property values, and you have a recipe for significant growth in your capital valuation. If you were to eventually sell your building, land or business, that increase could mean substantial income or further investment.
• Tax Deductions: As a business owner, you understand the significant tax burden on businesses can hinder their growth. Whether you lease or buy, there are tax deductions available to help you shoulder the load. Through ownership, you’re able to deduct building depreciation, building maintenance, and interest payments on your loan. If you were to lease, you would only be able to deduct your rent payments. The increased tax deductions of ownership will decrease your tax liability, allowing you to save some money come Tax Day.