BUYING VS. LEASING

Comprehensive strategies delivering the best outcome.

First define the pros and cons.

Considering buying the building that currently houses your business? Defining the advantages and disadvantages of buying or leasing your building can help you make an informed decision. Below you will find a breakdown of each.

At some point, every tenant is faced with the dilemma of deciding whether to lease or buy his or her real estate facilities. While every business is different, there are a few common factors that should be taken into consideration when evaluating whether to buy or lease office space.

Comparing the benefits of leasing versus buying from a cash standpoint is an important step, while looking at the businesses future needs. The long term space requirements are also an important part of deciding whether to lease or buy.

Often, when beginning a business, leasing appears more appealing. Cash flow is the main reason. When a tenant is purchasing office space, it takes a larger portion of cash up front, typically a down payment between 10% and 20% of the purchase price, depending on the lender and credit, plus closing costs. What is the opportunity costs for those dollars if used in your business? Most business owners facing this decision for the first time can feel overwhelmed. The thought of borrowing money to buy commercial property is intimidating. Ownership can also bring its separate set of headaches – being responsible for maintenance and operations have a great deal of go to the site. It’s time away from running the business should you decide to manage the property yourself.

However, buying office space certainly has its advantages. Developing equity in a building or office space can be a sensible way to grow your business or personal wealth portfolio.

Before making any decisions, do the homework; know the pros and cons of both buying and leasing.

BUYING ADVANTAGES

  • Interest on the mortgage loan is tax deductible
  • Changes can be made to the building to accommodate your business
  • You can take annual depreciation deductions on taxes
  • No rent increases
  • You can benefit if you sell when the market is good
  • If you end up with excess space, you can lease out the extra
  • No set hours of business
  • You can stay at that location as long as you wish

BUYING DISADVANTAGES

  • Usually requires a more initial capital to secure financing
  • Property values may decline
  • Owning real estate subjects the owner to various legal and regulatory risks not associated with leasing
  • Requires owners to invest much time and energy in matters that are not its business, unless property is part of a unit owners association
  • Inexperienced owners operate their real estate inefficiently and increase operating costs.

LEASE ADVANTAGES

  • Credit ratings are not quite as crucial compared to buying.
  • Don’t need to worry about selling if moving to a new location
  • Your monthly rent is a tax deduction as a business expense.
  • You have the freedom to sublet or move if need be at the expiration of the lease.
  • No loss if owning in a bad market.

LEASE DISADVANTAGES

  • Rental rates with annual escalations based on market conditions.
  • Loss of the reversion or the value of the property at lease end.
  • No equity buildup.
  • Tenant may HAVE to move at the end of the lease.

FACTORS TO CONSIDER

  • Appreciation to value ratios
  • Market
  • Cash outlay
  • Future growth
  • Fixed and variable cost factors,
  • And overall tax advantages
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