Choosing to buy or lease your commercial property takes some calculation. Clagett is here to help!
Whether launching or expanding a new office building, retail center, or mixed-used building, you’ll have to choose between buying or leasing the commercial property. When purchasing a commercial property, you’ll need more cash upfront, or you can finance the property with a commercial real estate loan. On the other hand, leasing a commercial property means you can rent the property for a set amount of time and renegotiate the terms if you want to use the property for an extended time. However, there are more factors you should consider. Let’s strategize the core differences and pros vs. cons of buying or leasing a commercial property.
What are the Pros of Buying a Commercial Property?
The first advantage of buying a commercial property is that you can build equity. There are two main ways that you can build equity. First, you can build equity by financing the property with a loan and paying down the loan with regular monthly payments. Secondly, your property’s value will increase with changes in the real estate market or any enhancements you make.
Another benefit of buying a commercial property is that, as the property owner, you can make any changes to your building without needing a landlord’s approval. There are also fewer variable costs. For example, buying a property eliminates the chance of a landlord increasing a lease payment at renewal.
The Cons of Buying a Commercial Property
You will need a large down payment if you choose to buy rather than lease. Some businesses might not have the cash flow to pay 10-20% of the purchase price. You’ll have to consider whether your business is equitable enough to make a large purchase and its ability to handle emergencies.
Secondly, if you want a commercial mortgage loan, a lender evaluates your credit, income, assets, and the condition and value of the property. Also, changing business locations is more challenging if the property you bought no longer meets your needs. You’ll have to find a new buyer willing to purchase the property, meaning leases offer more flexibility.
Why Leasing A Commercial Property is Beneficial
When choosing to lease versus buy, you’ll need less money upfront. Typically, renting a property only requires a security deposit, a fixed amount equal to several months’ lease payments. Meanwhile, remember that buying a property requires you to have 10-20% of the property’s purchase price.
Another pro is that you can easily switch properties. When a commercial real estate property lease expires, you can renew or vacate it. Thus, you can acquire a new property that is more suitable for your changing business needs. Purchasing real estate is more time-consuming and costly because you have to find a willing and able buyer.
Leasing a commercial property also has tax benefits. Tax rules and regulations are complex, so it’s best to work with a professional to understand how to maximize deductions and tax breaks fully.
The Cons of Leasing Commercial Property
The downside to leasing a property is that you have no ownership rights. Thus, you cannot build equity into the property and take advantage of the property value increase. Also, while leasing a property comes with a fixed monthly payment and set term, a landlord can increase the minimum required payment once your lease expires. You’ll also have to get written approval from the property owner if you want to modify the building.
Buying Vs. Leasing: Which to Choose?
After learning more, are you still torn about which option will benefit you the most? Here is a summary to help you streamline your decision. Consider leasing a commercial property if you:
- Want to spend less money upfront
- Can afford higher monthly payments
- Want more flexibility/don’t want a long-term financial commitment
- Don’t plan on making any significant changes to your building
- Expect to move shortly
Consider buying a commercial property if you:
- Have funds available for a downpayment
- Have excellent credit and finances
- Desire to make significant changes to the property
- Want to retain the property for a long time
Clagett is here to help you maximize your options, whichever choice you make.
Trust the Professionals at Clagett Enterprises for Your Realty Needs
If you’re looking for an experienced property management company, the perfect realtor for your property, or a professional to assist you during your purchase of any home, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistance with commercial sales, leasing, management, and development and consulting, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook and Linkedin.