As a business owner, choosing to buy or lease a commercial property can be a difficult decision to make. There are many factors to consider and depending on the circumstances of your business – the difference between a right and wrong answer may not be clear.
Understanding the pros and cons of leasing a commercial property can help you weigh up the possibilities. By applying this information to your own personal scenario, you can decide what is best for your business.
When you lease a commercial property, you have the flexibility to adapt to changes in the business whether that be unexpected growth or increased demand.
If your business outgrows the potential of your existing property, simply relocate to a bigger and better one that facilities the growing needs of your business.
This freedom will also allow you to expand quicker, since you are not paying a huge deposit upfront every time you open up in new locations.
If you are planning on staying at your commercial property for less than 7 years, in most circumstances leasing is a cheaper option. However, keep in mind the total cost of maintaining and renting your commercial property depends on the terms of your leasing agreement.
In many arrangements, you will only be required to pay the monthly rent while the landlord pays the property taxes and maintenance costs. In other circumstances, you will be required to pay the monthly rate along with some of the building costs.
Leasing a commercial property is an excellent way to reduce your upfront costs.
Instead of making a large upfront deposit on a mortgage, use that extra money to invest in the growth of your business. So you can focus on the core business activities that enable your business to grow and be more profitable.
Cons of Commercial Leasing
When it comes to paying the rent, you have to keep in mind the annual evaluation of the Consumer Price Index (CPI) and its measure on inflation, which will ultimately influence the amount of rent you pay.
For this reason, your rent payments will increase over time and you will be expected to pay higher premiums with every lease renewal, unlike buying a property where mortgage payments are relatively consistent.
These fluctuations can negatively impact your budget and if you are looking to stay for more than 7 years, buying a commercial property could be a cheaper option in the long run.
Just like the fluctuation of rental rates, when leasing a commercial property your livelihood hangs in the balance of the decisions made by a third-party… your landlord.
This can lead to unexpected decisions that can affect your business.
For example, everything could be going swell for the business and then suddenly… your landlord decides to sell the property. In this situation, you are left with no option (and little time) to relocate to another property that is equally suitable for your business.
These kind of unexpected changes, if they happen at a particularly inconvenient or demanding time, can disrupt the business while costing you a lot of money in the process.
Unable to Build Equity
Commercial leasing essentially means you are helping to pay off the landlord’s mortgage as opposed to your own.
This means the business is not contributing to the value of its own asset, and is instead building equity on behalf of someone else. Regardless of how much rent you might pay on an annual basis, your contribution is doing a lot to pay off a property you cannot sell later on.
Article provided by Digital360