People who own a small business have a fundamental question as they get started – should they buy or rent their commercial property space?
Choosing to buy
Buying commercial property is a good idea if the business owner wants complete control and doesn’t want to answer to a landlord.
This means the business can do as they please with remodeling, renovating or upgrading the space to suit their business needs.
If you can get the deposit together for a loan and purchase some commercial real estate, you of course then have the benefit of building equity and long term wealth from it as it appreciates in value over time.
The commercial property can double as a space to provide business income and as an investment vehicle.
Having the property there that you own gives business owners something to fall back on if their business fails and can also be used to gain certain tax advantages.
One final bonus of owning your own commercial property is that you have the option to lease the property to tenants if you want to abandon your business for whatever reason, or if appropriate you could share a space to get someone else contributing to the mortgage and other expenses.
On the downside, buying a commercial property also means you’ll have to pay for any ongoing maintenance issues.
There are also taxes associated with owning a commercial property and the owner also runs the risk that the property actually depreciates in value over time.
Choosing to rent
The other option for small business owners is to lease their space and this could the answer for those businesses that are unsure how much they could grow and whether they might outgrow the commercial property they are leasing.
With a lease you are not forever limited to a specific location, square metre area or monthly repayment amount, providing more flexibility than a long term mortgage.
With regards to location, it also means the small business owner might be able to afford to rent in an area that is too expensive for them to operate in if they were to try and buy commercial property there.
A lease could also be more suitable in uncertain economic conditions and for small business owners that are more comfortable committing to shorter time frames such as 3-5 years.
For those small business owners that are just starting out, getting going with a lease is often a good idea while they get their feet on the ground and it saves them having to come up with that loan deposit when funds are tight after being spent on everything else to get the business going.
An underrated advantage of leasing is you get to share the costs of the building with other companies if your building is not standalone and being close to a business community like that can be a great way to integrate your business into the community and build networks.
The downsides to leasing mean that you don’t build equity in the property and don’t make any money off it as an investment over time.
Renters also have to answer to landlords and can expect rents to rise over time in most cases.
With a good balance of pros and cons between the two options, the choice to buy or rent your commercial property to run your business in really does depend on what makes most sense and what is the best fit for your business.