Should you own or lease your company’s building? It’s a difficult question for many business owners, and there’s no clear-cut, universal answer. Your plan to purchase commercial real estate could be a worthwhile long-term investment, it could drain your financial resources, or it could land somewhere in between. Your decision should rely heavily on the circumstances of your business. Consider the following before you choose to buy or lease.
Is it an asset…
Your financial health: You’re better off purchasing commercial real estate if you’re in a solid financial position. If you have the financial capital to buy a property, you can factor in the building’s value for a significant advantage over leasing. Real estate can also contribute to a diversified investment portfolio, as long as you can maintain enough diversity to mitigate risk.
Your available funds: A commercial real estate purchase usually requires a substantial down payment, which can range between 10 and 25 percent of the purchase price. Alternatively, you may want to consider an SBA Loan to reduce that down payment. Also, can you afford the upfront costs? If you can, ask yourself if the money could be better spent elsewhere. If you don’t see a need to invest in other areas of your business, you might find that a real estate purchase is the best use of your available funds.
Your time commitment: Buying tends to be more advantageous than leasing if you plan to use the building for several years. Do you expect your business to outgrow the space in a few years, do you plan to retire soon, or can you see yourself settling in? Buying often starts to be much cheaper than leasing after around a decade or more of ownership.
…or just an expense?
Your location: If your business needs to be easily accessible to customers, leasing may be your only option. Locations with high visibility or high traffic tend to be much more expensive. You shouldn’t purchase real estate in a bad location simply for the sake of owning your building; it’s a poor investment for you and your business.
Your operational needs: Does the building meet the needs of your business as-is, or does it need some extensive changes? Make sure to factor renovation costs into your budget. If you need to spend a lot on renovations, you can often absorb more costs over the course of a long-term lease. Leasing also means you don’t have to spend more on building maintenance.
Your analysis of the market: Your decision may rely heavily on the current state of the real estate market. What are the purchase prices and financing costs like in your area? If you plan to buy, the timing of your purchase could put you at a disadvantage, even if you have the funds you need to meet the short-term costs.
The bottom line
While money will always be a significant factor in your decision to buy or lease, you should always consider the timing, your future plans, and the
specific needs of your business. If you find yourself in an ideal situation—you’ll run the business for many years to come, you’ve found the perfect building at a competitive price, and you can afford it—you may want to take the leap. Most situations aren’t so clear-cut, however, and you’ll need professional advice to make the best possible decision. Contact Ser & Associates to discuss the future of your business with an experienced attorney. We will use our extensive legal knowledge to address the unique needs of your business.
