Should you buy or rent commercial property?
Many growing businesses eventually need to ask an important real estate question: Should I buy or rent? There are advantages to renting, of course: You typically have lower monthly payments and your landlord will generally be the one to deal with major maintenance issues such as landscaping or utility repair issues.
When answering the question of whether to buy or rent, you need to consider all the impacts the decision will have on your business, for example:
Monthly payments are typically consistent and predictable based on your loan terms when you buy. This gives you a better ability to forecast your cash flow over time.
|Improvements||If you rent, making improvements could mean getting a landlord’s permission and the possibility of having to reverse the improvements at the end of your lease term. As an owner, you may need to obtain zoning waivers or work permits when performing improvements.|
|Tax advantages||You may be able to claim a portion of a building’s cost each year in the form of depreciation if you buy. Another option: Buy real estate personally and rent it to your company, an ownership structure that has some tax advantages (consult a tax professional for advice).|
|Investment||Consider buying if you believe the real estate in question may grow in value. Your payments build equity in the property, but factors such as location, how long you hold the property and the general real estate market can affect whether the value goes up or down.|
|Resale||Buying now probably means you’re selling later. For some businesses, it’s easier to sell if real estate is part of the deal. A prospective buyer may find it easier to get financing when both the business and the real estate associated with that business is involved in the transaction.|
These are just some of the issues to consider. Your individual business and financial situation will be a key factor in determining whether to buy or rent. In any case, take the time to conduct due diligence and investigate all your options before making any real estate decision.