It can be challenging to decide on whether to buy or lease commercial real estate property. You have to consider your budget and conduct research to identify the best option for your company growth. Moreover, you should consider the overall cost of buying or leasing and if you will need full ownership of the real estate. This post will provide details on the difference between purchasing and leasing to help you arrive at a better decision.
Some of the merits and cons of buying a real estate include;
You can purchase property even with a 10 percent equity, and every payment you make assists in offsetting a portion of the principal. This enables you to build equity in that property. Moreover, you can rent a part of the property after purchasing it. You also get tax breaks when you buy commercial real estate. Depreciation of commercial property is tax-deductible, and you could use the savings to pay for the costs of real estate ownership.
If you are running on a tight budget, then buying can be a challenge since they involve high upfront payments. What’s more, you are liable to property taxes, repairs, maintenance and insurance, which could fleece your profits. Buying also limits your flexibility since the mortgage ties you to one location. Additionally, it is expensive to purchase commercial real estate in competitive markets.
Leasing has its upsides and downsides, here are a few of them;
Leasing offers more liquidity since you will not have to make upfront payments to move into the property. It also allows you to concentrate on the company since you will not be dealing with strenuous processes like maintenance costs, insurance requirements and so on. You will also deduct expenses incurred such as lease payments, property insurance, maintenance and utilities from being taxed. Moreover, it is easier to qualify for a lease than a commercial property loan.
The main disadvantage of leasing is you will not own the property despite your monthly payments; there is no opportunity for equity. Moreover, in most cases, your monthly rental fees will be higher than standard mortgage payments depending on the location. Additionally, the rent payments are different each year; they could rise or drop depending on the demand. This renders long-term budgeting difficult. The net leases also shift most of the maintenance and repair costs to you.
Buying or leasing boils down to what suits your needs. Buying can be the best option if you want to build equity or resell the property. However, be wary of the high upfront charges and maintenance costs. Leasing can be the most compelling option if you want more flexibility in terms of location.