Buying vs. Renting Commercial Property: 4 Factors to Consider

Buying vs. Renting Commercial Building

4 Factors to Consider
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Buying vs Renting?

It’s a question that pops up for everyone at some point in time. If you’re a business owner, it can be a difficult decision with far-reaching implications for you and your business. As with any decision, you understand that it requires research, weighing both options, and coming to an informed conclusion that sets the table for continued success. We’ve compiled a list of factors to consider for your commercial project, and we’ll let you decide which is the savvy move for you and your business: buying vs renting.

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Cash Flow

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.

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Renting vs Buying Commercial Building Infographic

Location

Location can make or break your business, so it goes without saying that it should be carefully considered whether you’re buying or renting a commercial space. Many business owners that choose to lease do so because it presents an opportunity to get their operations up and running on a faster timeline. In most cases, you’re likely to find a variety of commercial sites available for rent, and because the leasing process is less intensive, you’re able to move in relatively quickly. If you’re looking for a quick transition, that strategy might be the way to go.

If you’re looking for a long-term solution, there’s simply no substitute for purchasing a commercial building. When combined with extensive research: local zoning laws, community planning, traffic patterns and population projections, for example; an owned facility is more conducive to long-term success. It allows the business to establish credibility and an identity as part of a thriving community.

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Autonomy

Renting has its benefits, including little to no costs for maintenance of your building. That responsibility falls to the landlord, which can be a relief for you financially, and perhaps, emotionally. That relief might be short-lived, though, when you realize your business facility is in need of repair or renovation. While you can work with the landlord to make the necessary improvements, he or she ultimately will make the final decision. That leaves you susceptible to inadequate facilities and a business that is unable to operate at maximum efficiency.

When buying and owning a building for commercial purposes, you get to make the final decisions. This gives you peace of mind, but it also gives you the flexibility to make the adjustments needed to ensure your business is operating at full strength. Perhaps most importantly, having full control of your building gives you the flexibility to expand your business in the future. Commercial buildings are not one-size-fits-all, and having full autonomy over the design and construction of your facility will pay dividends in the future.

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Creating Value

Many business owners decide that initial cash flow is a priority in getting their business up and running. A lease allows them to use that extra cash to invest in their business, and that short-term investment often gives them the security and start they need.

Long-Term Value

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.