Some small businesses are operated out of the business owner's personal home. Yet
others require a dedicated work space to offer products and services depending on their
industry. If you require a commercial office space, retail space, restaurant space or
industrial building, you must decide whether you plan to buy the real estate property
outright or to lease the property for your operational purposes.
When Leasing is the Best Deal
Leasing is normally ideal for young small businesses that are just starting out in
accumulating both equipment and workers. Most of your investments and cash flow
are going into the operations themselves, as you don't want to worry about the purchase,
mortgage, taxes or maintenance associated with buying a building. The landowner can
handle all the maintenance and upkeep of the property while it leaves you with more time
to focus on building your profits.
If you simple don't have the money for the down payment, leasing can be the best
decision to make. Also, if you are experiencing rapid growth with workers and
operations, it may just be easier to move your operations to a bigger facility than taking
on the added costs of renovating a purchased building. Leasing can be ideal for small
businesses that plan to move in the near future to another location where they can
better serve their customers or to be closer to their suppliers as you don't want to be
tied up in selling the property a year or two from now. Another advantage is that your
lease payments are tax deductible, and you can rent in places where commercial real
estate is high priced but leasing a space offers better cost savings.
When Buying is the Ideal Solution
Buying commercial real estate is ideal for a small business when you don't see the
operations moving anywhere or changing drastically in the foreseeable future. Not
unlike the transition from renting an apartment to being a homeowner, you have enough
working capital and a healthy cash flow where you can make the down payment,
mortgage costs, property taxes and maintenance to the property.
Even if you do plan to expand your operations, you may be able to easily do so by
renovating and remodeling the existing space. You can bring in more specialized
equipment and tailor the building's architecture to better suit your production processes.
In addition, you can hire your own reliable maintenance staff in house to take care of the
building and any problems that arise so you can lessen the amount of business downtime.
After the initial costs of purchasing a property, a small business may find additional
savings as you won't have to worry about leasing rates increasing year after year. You will just make one steady mortgage payment until paying off the loan. You can also write off the interest payments of the mortgage on your taxes along with the depreciation of the building. A major advantage to owning real estate property is that you can build equity. You can tap into this equity to make renovations or to place toward other business endeavors.
Lastly, if you purchase a building that has extra space, you can rent out the area to other
businesses. You can bring in passive income from this lease arrangement.
Every small business has different operational and financial goals. Buying a building or
leasing office space will be based on your current and future needs, how much you can
spend on a property, and the current real estate market trends. Carefully consider all your
options to decide on the best solution for your business.
Guest Post By: Ryan Tollefsen, Unity Home Group Team Leader