The Benefits of a Commercial Real Estate Purchase
Among the many decisions a business owner needs to make is whether to lease or purchase commercial real estate. This will depend on the established cash flow and the needs of the business. A company with unique retail needs may not want to invest money in a leased space. However, a business with minimal funds may only be able to afford leased property. Whatever the option, there are pros and cons to each.
Your Timeframe Matters
If you plan on keeping your business at the same location for an extended period of time, buying commercial real estate is the best option. Financial experts use the seven-year mark as a standard. If you plan on staying at a property for seven years or longer, buying the property is a better choice. If you plan on staying for less than seven years, the cost of short-term leasing makes more financial sense.
Considerations to Make Before Deciding
There are many variables you should weigh when deciding to lease or buy. Consider what your current monthly recurring costs are and what upfront costs are required for either option. Also, investigate the tax benefits of each choice. Other factors to consider are whether your spatial needs will change quickly and whether you can afford the costs of maintaining a property. You will also need to weigh whether your capital is put to better use in a commercial real estate purchase or in improving business operations.
The Benefits of Purchasing
Many businesses invest in real estate because it is an asset that grows in value over time. With every monthly mortgage payment made, equity is built that can later be extracted when refinancing. This equity can then be put back into the business. Another benefit is the possibility of renting out unoccupied space thereby brining in an additional stream of revenue. There are also tax benefits to purchasing. Interest expenses can be deducted from taxes as can depreciation and non-mortgage expenses.
The Benefits of Leasing
The option to lease offers business owners greater flexibility. You have more liquidity because the upfront costs are minimal compared to the capital required to purchase a property. This means you are left with more money to invest in the running of your business. Leasing also offers tax benefits. Lease payments are deductible, as are insurance and maintenance costs.
The amount of capital at your disposal will likely be the determining factor in your decision to purchase or lease. Each offers pros and cons, but the benefits will depend on what stage your business is in. Established businesses with greater cash flow are more likely to benefit from purchasing whereas newer businesses with less funds may find greater benefits in leasing.
