Should You Buy or Lease Your Commercial Real Estate?
Pros and Cons of Buying vs Leasing Commercial Property
While running a business is rewarding, the list of stresses and pressures that accompany any business owner seems to multiply around every bend in the road. And with each added pressure, productivity can suffer.
Thankfully, every pressure, whether small or large, provides an opportunity for change and growth, bringing more efficiency and productivity. There is always a solution to every obstacle.
You simply must find the right solution for your company.
Don’t let your building space distract from the primary goal
One foundational factor that ideally should warrant the least amount of stress and time, your building, often can become the biggest stress.
Your physical property should be one that supports your daily operations, displays your company’s environment and stands as a professional testament to your success, without detracting from company goals.
Your space should offer efficiency, versatility and functionality. Therefore, you must ask yourself “Will those goals best be achieved by buying or leasing my commercial space?”
Which is best? Is buying or leasing commercial property more cost effective? When does buying vs leasing make the most sense for a business?
All important questions to ask.
That’s why we’re providing you with a quick comparison for buying vs
leasing commercial property.
Buying Vs Leasing Commercial Property
Below we’ve outlined the top three areas of consideration for your space and the effects both buying and leasing have on each.
- Your Cost
- Your Time
- Your Flexibility
Your Costs – How does your building affect your P&L?
Whatever you want to call it – cash flow, the bottom line, the P&L – the cost of any decision is certainly the most profiled factor of a business. So which option is the most economical – buying or leasing? Let’s take a look.
Upfront Costs
- Buying – Your upfront costs when buying are generally 10 – 25% of your entire purchase price
- Leasing – Upfront costs for leasing generally consists of the first and last month’s rent
Working Capital
- Buying – With large investments in the down payment and building upgrades, much of your working capital is tied up in the building
- Leasing – With minimal upfront investment, cash is available for more business growth and continued investment opportunities
Property Repairs
- Buying – You are solely responsible for funding and maintaining repairs on your property
- Leasing – The burden of the property upkeep and repairs rests with the landlord
Appreciation
- Buying – Owning allows you the opportunity to benefit from long-term appreciation in value
- Leasing – No appreciation assets available through property investment
Your Time – How does it affect your time as a business owner?
Time is Money. And those that have run a business for any amount of time, fully understand the value of that statement. You can’t do it all. You must determine if your building maintenance is one area in which you are willing to give your time or not.
Property Management
- Buying – Your time and attention must be given to the upkeep and management of the property
- Leasing – The landlord invests the time and attention for the needs of the property
Your Flexibility – How does it affect your ability to be flexible as a business?
Fixed vs Variable Rate
- Buying – Fixed rate on most building mortgages can allow you to plan well for the long run
- Leasing – Monthly rates can vary and change with the market, requiring more strategic planning for unexpected price adjustments.
Growth considerations
- Buying – Better for a stable company with established systems and company size
- Leasing – Better for a new or rapid growth company, that may need to change property locations more easily
Location
- Buying – Can experience limitations if stuck in a location that may no longer fit your needs, or may have hit a temporary dip in property value depending on current real estate market
- Leasing – Flexibility to move without concern of the current building value, allowing ample opportunity for growth and expansion
Ultimately, you must closely analyze numerous factors of your business, including current working capital, future cash flow needs, growth potential and long-term investment goals.
Both buying and leasing have a place in different cycles of a business’s lifespan.
And while PMC offers commercial leasing as our primary service, we have determined never to recommend a space or situation that is not right for your business. We have helped hundreds of businesses find the right solution for their unique situation, even if that means recommending something outside of our holdings.
However, we would be remiss not to suggest leasing as a viable and preferable option for your business. After all, we service commercial leasing because we believe that it provides an optimal solution to businesses.
We find the most satisfaction in our business when we are providing the right solutions to our clients. Let us help you determine what space is the right fit for you!
