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9/11/2019

Buying or Leasing A Commercial Property? Which Is Best For Your Business?

If you are planning to launch a new business or expanding an existing one, you may be confronted with the dilemma of choosing between buying or leasing the new property. There are many benefits of leasing or even buying a commercial property. To make your decision easier, consider these facts of leasing versus buying a commercial property. 

Benefits of Buying a Commercial Property:

1. Control over the property:

 When you own property, you have control over what you do to it - which means you don't need to negotiate with a landlord if you want to make significant renovations. Buying a property can also help, vis-à-vis having flexible work timing. So, if you want to conduct your business in a very different way, you can work without any restriction. 

2. Long-term monetary outgo:

The total monetary outgo in the form of rentals and security deposit that you need to pay from your pocket over many years may end up being more than what you would pay to purchase a property. Thus owning a property can be better than leasing in the long run.

3. Tax savings: 

If you are buying a commercial property, you can deduct the following on your commercial property when calculating tax payments:

  • Interest expense

  • Depreciation expense

  • Non-mortgage related expenses

Additionally, non-profits can achieve additional tax advantages by purchasing a property rather than leasing.

4. Appreciating asset:

Owning commercial real estate allows you to take advantage of asset appreciation. This appreciation represents the increase in your property's value over time. You can later sell the property and use the significant profit to fund other work or fulfill your personal goals.

5. Opportunity to Build Equity

The beauty of buying a commercial property is that your down payment and monthly payments help you build equity in the property. This is because a portion of those monthly payments goes towards paying down your principal loan amount. When you eventually refinance or sell the property, your equity is the difference between the remaining loan amount and the current property's fair market value. This equity can eventually be used to build the overall value of your business.

Benefits of Leasing a Commercial Property:

1. Cash flow: 

In terms of a pure cash flow, leasing a property is better than buying. If you are planning to launch a new business and are currently in the process of business expansion, then, leasing is a better option. In case of leasing a commercial space, your initial outgo will be limited to the security deposit and first month’s rent. In case of buying a commercial space, your initial outgo will be at least, the down payment for a loan, which is usually quite high.

2. Easy property maintenance:

Managing a commercial property can be complicated as there are insurance requirements, maintenance costs and several other issues that can distract you from your main goal. A leasing option allows you to focus solely on running your business.

3. Greater flexibility: 

If you want more flexibility and not be tied down to a single location for a long time. Leasing a property gives you far more mobility than an outright purchase. Moving to a new location by selling the purchased commercial real estate, may not be a good idea, especially if the prices of property are appreciating.

4. Tax Benefits:

There are many tax benefits associated with leasing commercial property. Specifically, the types of costs that you can deduct when calculating your taxes include:

  • Lease payments

  • Property insurance

  • Property taxes

  • Utilities and maintenance

Unlike buying commercial property, it’s possible to deduct the entire lease payment. This gives you more tax savings, on average, when you lease a commercial property.

Final Words:

The decision of whether to purchase or lease a commercial property comes down to your preferences. In any decision to buy or lease a commercial space, make sure you have the right people on your side and involve them in this process. This includes:

  • An experienced real estate adviser with expertise in commercial real estate

  • An experienced lawyer who specializes in the conveyancing of commercial property

  • A mortgage adviser

  • Your accountant

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