Many businesses choose to own their facilities, but not all of them go this route. While it can lower overhead in the long term, buying property assumes the company in question can buy the right property. It also believes that the operational model would benefit from those long-term savings over other risk reduction benefits offered by a commercial real estate lease.
The truth is, neither buying nor leasing is the best choice. Each has clear advantages when used under the right circumstances and understanding which the balance favors is the key to growing a small company into a larger one.
When Leasing Is Your Best Option
The most straightforward case of leasing being the obvious choice for a business? If you can’t find the right location in the sale market. Often investors buy up ideal lots like corner properties and develop them into long-term income properties. That means getting the best spot in town requires a lease sometimes. It can also be advantageous if you are using a local customer draw like a mall or big box store by renting space that provides you with the ensuing traffic.
Commercial real estate leasing is also the best choice when your finances do not support a property purchase. It’s often the case that a business could find some financing for purchase but would require too much money upfront. It’s a lot easier to move into a monthly expense you can renegotiate in a set number of years.
When Purchasing a Property Is Best
Buying commercial property is a good idea when the company has the working capital for a generous down payment that helps control the monthly costs of the loan. When that happens, you can lower monthly costs by getting a commercial mortgage that is less expensive than your lease. If you need to go through a program that minimizes the down payment to close, you might wind up paying more than the local lease rate averages.
A purchase also assumes that operating out of that location is a permanent move on your company’s part since paying off the loan and enjoying the huge reduction in overhead that comes without any monthly building loans or lease fees means waiting for a decade or more for many companies. Keep that in mind when deciding whether it is time to buy commercial real estate. If you see yourself changing locations to keep up with market trends, it’s time to lease.