Should I buy or lease?

A question our team gets asked on a regular basis from clients of all sizes is “should I buy or lease our commercial property?” As with most questions, the best answer is, “it depends.” There are pros and cons to both, and the right decision for your business must be analyzed on a case by case basis. Below we break down some of the elements to consider when making a decision with such a significant impact on your business.

Reasons to Consider Leasing Your Commercial Real Estate:

Flexibility: Your business may be in a growth phase, and you are not sure what your business’ space requirements will be in three to five years.

Opportunity Cost: A dollar spent towards owning your commercial real estate may be better spent putting back into your business. A down payment can be a significant amount of money, and that investment may have a greater impact on your business’ future if spent elsewhere.

Reasons to Consider Buying Your Commercial Real Estate:

Control: Buying your commercial real estate gives you full control of the asset that you acquire, subject to the area’s zoning and local rules and regulations. You also have more control over your cost of occupancy. When leasing a property, a landlord potentially has the right to increase the rent, reject changes you wish to make to the property and prevent you from subleasing the space. If you outgrow a building you own, you can sell the property or lease the space to whomever you deem sufficient.

Equity and Asset Appreciation: If you take out a loan to buy your property, your down payment and monthly payments build equity in your business’ property. If you eventually sell or refinance your property, your equity is the difference between what is now considered the property’s value and the remaining balance on the loan.

Over a long period of time, or in a hot market like the one we have been experiencing over the last 5 years, your asset could appreciate significantly, making your property more valuable when you decide to sell.

These are only a few of the many items to consider when buying or leasing commercial real estate, and, as you can see, there is no easy answer. Much of the decision is based on what the long-term vision for your business looks like. It can also be helpful to work through hypothetical scenarios like, “what if you anticipate your company needing cash for a large expenditure within the next 12 months?”

Feel free to reach out to any of our team members to help you navigate this important decision!