The Advantages of Leasing vs. Buying <b>Commercial Property</b> <b>...</b>

If you own your own business you must consider the advantages and disadvantages associated with buying a commercial property. New business owners generally choose to lease real estate until they are comfortable enough to move on to real estate ownership. If you have been in business for a fair amount of time choosing to invest in commercial real estate is a big commitment. Before you decide to buy you should research the advantages and disadvantages of property ownership and property leasing. Once you consider the pros and cons of each you can make an informed decision.

Advantages of Purchasing a Commercial Property

When you buy a property all of the payments you make towards your mortgage note are applied to the balance of the loan. If you make a good investment you will earn equity in your property as you pay down the balance. The equity you earn acts as an asset for your business. If market values increase after you purchase the property you can reap the benefits in capital growth. Tenants do not benefit from equity or property growth. This is a consideration you will have to keep in mind when you are weighing all of your options.

Disadvantages of Purchasing Commercial Real Estate

Where there are advantages there are always disadvantages. When you buy a property you have to prove credit worthiness. Then can become an issue for owners with bad credit or no experience in their industry. You will also need a large chunk of capital to put down as a down payment. If you do not have a large sum of money you may not qualify for a loan. Property owners are responsible for their own maintenance insurance property taxes and cleaning. If you are not ready to take on these responsibilities you may want to reconsider your intention to buy.

Advantages of Leasing

Leasing does not require a large amount of capital so you can use your money to purchase inventory and pay for marketing. Another advantage of leasing is that the landlord has to maintain the property so you do not have to take on additional responsibilities. Some leases include the cost of fixtures utilities signage and cleaning. You will need to review what is included in the lease before you sign one.

Disadvantages of Leasing

One of the biggest disadvantages of leasing is the fact that you as a tenant are paying the landlord’s lease. This means that the payments you make are earning someone else equity. Leased properties are not a business asset. The landlord has the right to refuse lease renewals once your term ends.

Purchasing real estate is a commitment. During economic downturns purchasing becomes more difficult because lenders are much more strict with their lending requirements and underwriting guidelines. While this is the case when property values are down you have the opportunity to pay less and earn capital growth over time. Consider all of your options in terms of leasing and buying commercial property and make a decision that will benefit your business.

Tags: maintenance insurance property taxes, real estate ownership, Business Finance, real estate, fixtures utilities signage

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