Should I buy or lease? This is a question often asked by small business owners. Of course, it’s quickly followed by questions regarding cost, benefits and timeline.
FitSmallBusiness.com, a small business resource center, conducted an analysis on buying vs. leasing. It found buying commercial real estate is a better option if you plan to stay in the same location for seven or more years. If you plan to stay in a single location for less than seven years, then leasing might be a better option.
“This is because we found that over a 15-year occupancy period, leasing commercial real estate costs as much as 86.6% more in our example than buying commercial real estate,” said FitSmallBusiness.com. “However, when the expected occupancy period drops from 15 years to seven years, the cost of leasing is actually less than buying commercial real estate. This makes seven years the ‘break-even’ point for buying vs. leasing.”
The analysis took into account up-front costs, monthly recurring costs, opportunity costs, tax savings, asset price appreciation, increases in business equity, and money earned in the sale of property.
Pros of Buying
Building Equity: Whether you buy it for cash or take out a loan, you will have and/or build equity. Equity in the property helps to build up the value of your business. In addition, SBA 504 Small Business Loans might be available to you.
Appreciation: Ownership of property lets you benefit from capital appreciation. The rate of appreciation varies based on a number of different factors.
Rental Income: If you don’t utilize the whole building, renting part of it out -and adding some monthly income -might be something worth considering.
Tax Breaks: Owning property can give you tax deductions from mortgage interest, property taxes and other items.
Control: Having control means you don’t have to renegotiate a lease with a landlord every five to 10 years. It also means you will enjoy a fixed rate mortgage payments rather than possible increases upon renewal of a lease.
Retirement Savings: Real estate appreciates over time and can help fund your retirement when you are ready to sell.
Pros of Leasing
Prime location: When the location you want is not for sale, leasing space could give you the chance to be in that location, or in a similar, high-visibility location. In this scenario, leasing can be more cost-effective than buying.
Free up capital: You will have more available cash to take advantage of marketplace opportunities and will have greater ability to borrow funds if needed.
More time: Ownership can be a huge headache at times. Leasing allows more time for you to focus on running your business.
Easier to budget: Leasing means that significant maintenance, many repairs and upkeep to the property are the landlord’s problem, not yours. This can save you huge unforeseen costs and you will be able to budget exactly what you need to pay each month.
Greater tax breaks: As with buying, you will enjoy tax breaks. Those with leasing may be greater as you can deduct not only property taxes and insurance, but the entire lease payment plus utilities and maintenance.
Get Help From a Professional
Sorting through the options for buying vs. leasing can be time-consuming, as can negotiations. Enlisting the help of a professional such as Caton Commercial Real Estate Group can save you valuable time and assure you that you’ll have a professional at your side during negotiations, answering your questions, and making certain you get the best deal possible.
Contact us to find out how we can help you find the best location for your business to grow and flourish.