Most businesses use commercial spaces for their day to day operations. These include factories, office spaces, and storefronts.
When you’re starting a new business or expanding an existing one, the first thing you need to do is look for the perfect commercial property. Once you’ve found the ideal space, you’ll have to decide the best way to finance the acquisition of the property.
There are two main options available to finance the purchase:
- Buy the property
- Lease the property
What’s The Difference?
The first thing you need to do is to understand the difference between the two options. When you buy commercial real estate, you’re purchasing it from the seller by paying through either a bank loan or cash. If you used loan proceeds, once you’ve made the payment, you own the property outright.
Leasing commercial real estate means you’re renting space from the owner for a specified period. It can be either long-term or short-term, depending on your needs and the owner’s preference. This means you’ll be a tenant in that property and the lease will have to be renewed once the time is up if you wish to continue using that space.
The Pros and Cons of Buying Commercial Real Estate
The biggest advantage of buying the property is you get equity. The equity can be used for collateral for financing a future project. Additionally, as you pay off the interest and the principal loan each month, your ownership stake will keep increasing.
Similarly, as the market value of the property increases, you can expect a sizable profit in the future when you sell it off. You also have the option to rent it out in case you have extra space or you’re moving your office to a new location. The rental income will serve as a revenue stream that will help your future financing needs.
The drawbacks include a high upfront investment and upkeep costs which you’ll have to pay, being the owner of the property. Buying commercial property through a mortgage also means you will be tied down to the place until you’ve paid it off.
The Pros and Cons of Leasing a Commercial Property
The biggest benefit of leasing commercial real estate is avoiding a huge down payment, as well as the costs of maintenance and upkeep of the property. You also have the option to stay or move to a different office once your lease is up. Most importantly, you get massive tax breaks as the lease payment and other costs such as utilities are tax-deductible.
The disadvantage is that even if you continue renewing the lease and keep paying rent for years, you’ll never get a stake in the ownership of the property. Another drawback is that sometimes, the rent is quite exorbitant and even more than what a mortgage payment would cost. You also have no idea whether the rent prices will go up or down in the future, which can make long-term budgeting difficult.
Let the expert real estate brokers at Macomb Commercial Real Estate help you decide on the perfect commercial property for your business. Our expert real estate team has years of experience helping our clients in buy Industrial spaces properties in Macomb, commercial properties, and commercial land for sale.