Your small business is growing and it’s time to move it to a new location. However, you’re having trouble deciding whether to lease or buy a commercial property. Listed below are a few things to consider before making your final decision.
Have a Business Plan in Place
Before getting started, it’s critical that you know what you can spend, and the things the property must have. Completing a financial analysis of your business ahead of time will afford you a real picture of what you can afford to spend.
A person who knows and studies the area, who performs diligent research and understands the market trends, can help assist with whether a property is worth buying in the current market or whether it’s best to lease. A market analysis to determine building costs, maintenance and capital to grow is essential. Calling a professional such as Jim Plante, will get you the pertinent information you need to make an educated decision based on facts.
The Current Housing Market
Supply and demand often play a role in whether it’s a buyer’s or a seller’s market. If there are only a few properties available, then the pricing falls in favor of the seller. However, if there are many properties listed for sale, then it’s a buyer’s market and scoring a deal in your favor is more likely. In a seller’s market, buying a property may not prove a wise investment.
It’s no secret that a terrific location where traffic flows heavily and the property offers convenient access is desirable. On the other hand, if the commercial property sits behind another building or is in town with no lot of its own, potential customers will not be able to find you or park their cars, which is a major deterrent. You must also consider the zoning laws to make sure that you are able to comply with the regulations.
Length of Time
If your business is just taking off, the potential to expand even further is a likely possibility. Leasing a property gives you the option, after the negotiated contract ends, to simply walk away from the property. However, if you buy the building outright, you will need to sell it or at the very least, lease it out to another business. If you plan on a short tenure of 7 years or less, then leasing is a better option.
When you lease a property, you have no stake in it. While you will have a contract for a specific amount of time, you won’t gain any equity. You also won’t have any say in what you can do with the property, inside or out. You must always consult with the owner. And, unlike a fixed mortgage that’s predictable from one year to the next, when you lease the rates can climb.
However, there are benefits to leasing. First, you can deduct your monthly rent and operating costs annually on your taxes. And, second, you are not responsible for the property, so if someone gets hurt or there’s a fire, it likely falls in the owner.
In the end, much of the final decision will weigh heavily on your capital, the money you have available to buy a property. Depending on your business’ credit report, a lender may require 10 to 20 percent or as much as 40 percent of the building’s value as a down payment. And, if you’re looking at a building with a value of more than a million dollars this can mean parting with $400,000 dollars.
Making the decision to buy or lease a commercial property is a decision that you should take your time and weigh all the pros and cons carefully.