Acquiring commercial real estate is a necessity for many businesses. How they come about acquiring it, financially-speaking, is just as crucial.
Whether you decide to apply for a loan to purchase a property, or to become a tenant, there are important factors to consider.
We’ve weighed the pros and cons of buying and leasing commercial property so you don’t have to.
Pros of Buying
You Pay Less in the Long-Term
One of the primary advantages of buying a commercial property over leasing it is that you end up paying less for it in the long-term.
Continued rental payments over the years may take a toll on a business. New business owners may be guided by first-year cash flow projections and make the decision to forestall buying a property.
Leasing the property will also hinder you from making any changes to the space that your landlord may disagree with. Also consider whether moving your business to a different location is on the cards for the future or not.
You Build Equity
Getting a loan to buy a commercial property means making a down-payment and monthly payments. These payments build equity in the property as your ownership stake increases. Equity is the difference between the property’s market value and the remaining loan balance. As equity builds the value of your business, you can use it as collateral when you need to.
Commercial property has the immense benefit of appreciating in value over time. This will return a sizable profit for any future financial needs you may have. The rate at which the property appreciates is dependent on local supply and demand conditions, inflation, interest rates, and more.
Cons of Buying
High Upfront Investment
Perhaps the main disadvantage of buying a commercial property is that you need to make a substantial down-payment. Due diligence fees and closing costs are also something you will have to cover.
You are liable to the costs incurred when someone is hurt on your property. That means paying for a suitable liability insurance policy in order to battle lawsuits. Renting out part of the property means you will have to deal with property manager liability as well.
Pros of Leasing
Of course, as opposed to buying the property, leasing it will mean you won’t need to pay a down-payment. Your cash-flow will not remain tied up in hefty loan payments.
You can deduct the following costs: property insurance, lease payments, utilities and maintenance, and property taxes. Your entire lease payment can be deducted.
Picking a space is easier when you consider that it is easier to qualify for a lease than it is to qualify for a commercial real estate loan. If you ever need to move your business to another location, you will not have to deal with selling off the property.
Cons of Leasing
Appreciation and Equity Aren’t Factors Anymore
Where asset appreciation and equity accumulation were major advantages to buying commercial property, they aren’t factors at all when leasing one. Some landlords may offer a rent-to-buy feature in their contracts, but no equity means no appreciation.
High Rent and Rent Hikes
Monthly rent rates can be extremely high and will typically exceed the mortgage payments on the property. Your lease payments usually include property taxes, monthly retail insurance, and utilities and maintenance costs. Also, annual rent rates are subject to increase.
Should You Buy or Lease?
Whether you buy or lease commercial real estate for your business is entirely up to your financial needs and your business’s long-term goals. To make your decision and the process of acquiring real estate for your business in Macomb County easier, consider a professional real estate brokerage agency.
Macomb Commercial Real Estate provides excellent commercial real estate services to the community in Macomb County. You can search through exclusive listings throughout South-East Michigan for commercial properties on rent and for sale here.
When it comes to office spaces for lease Macomb, we are at your service.