Buying vs. Leasing a Commercial Space: The Pros and Cons

As a thriving business owner, you’ll inevitably be faced with the decision to buy or lease your next commercial space. In order to help you make the right decision for your business’ unique needs, we’ve outlined the pros and cons of both buying and leasing below:

Buying: The Pros

Predictable Monthly Costs– Buying your own commercial space means you can look forward to a predictable, locked-in commercial mortgage. This will allow you to maintain fixed monthly payments, regardless of changes in the market to which rental rates are vulnerable.

Tax Breaks – As a commercial property owner, you may be eligible for significant tax deductions. These may include mortgage interest payments, depreciation, property taxes and additional accounting line items.

Build Valuable Equity – Naturally, your ownership of the purchased property increases as you pay down the mortgage loan principal and interest. This accumulated equity may be used as collateral for your future financial goals.

Potential Rental Income – Generate additional income and cash flows by opting to lease part of your property. Moreover, as a landlord, you will qualify for further tax breaks and deductions.

Appreciation – In most markets, commercial real estate tends to appreciate over time. While appreciation does vary according to inflation, interest rates and supply and demand, when it does come time to sell, you’ll likely net a substantial profit.

No Restrictions – Unlike a lessee, you won’t be required to seek your landlord’s permission when it comes to reconfiguring your space to best suit your needs. You’ll also be free of any restrictions pertaining to operational hours (also imposed by the landlord).

Buying: The Cons

Upfront Costs – Like any investment, purchasing your own commercial space will require a few upfront costs. These will include your initial down payment (which will vary according to purchase price) as well as a few other fees such as appraisal and loan fees, potential repairs, etc.

Repairs and Maintenance – As an owner, you will have the freedom to make changes, renovations or adjustments to your property. This does mean, however, you’ll also be responsible for associated maintenance or repairs.

Reduced Flexibility – If your business outgrows the space, you will be tied to the property either as a landlord (if you opt to rent it out) or until you sell.

Leasing: The Pros

Choice Locations – Savvy landlords tend to purchase and lease office spaces in prime locations, resulting in a steady flow of foot traffic. Keep in mind however, these locations tend to see higher rental rates.

More Free Time – Since repairs and maintenance are the responsibility of your landlord, you’ll have more free time to focus on your business.

Upfront Working Capital – As we mentioned, purchasing your own commercial space will require an initial investment. Although leasing won’t give you the opportunity to build valuable equity, it will allow you to maintain more upfront working capital when you’re first starting out.

Leasing: The Cons

No Capital Appreciation – While some contracts come equipped with a rent-to-buy feature (giving you a small stake of ownership in the property), in most cases, you’ll be funding someone else’s retirement dream.

Subject to Rental Changes – Leasing doesn’t just put you at the mercy of your landlord’s schedule when it comes to maintenance and repairs; it also makes you more vulnerable to market changes. Unlike the predictable costs associated with a mortgage, your rental payments are subject to annual increases (with prime locations especially susceptible).

The decision to buy or lease will depend on your business’ unique needs.

Just as buying a commercial property will ensure long term and financial stability, leasing may be a better option for owners simply looking for a short-term solution. Be sure to assess your goals carefully beforehand. To learn more about how Stretch Construction can help you reach your business goals, we invite you to get in touch or subscribe to our Newsletter.