To Lease or to Buy, Advantages and Disadvantages.
Not all businesses are in the position where they can afford to purchase an entire property. These individuals necessarily sign a lease for their business. However, those businesses that have built up some capital can find more benefit in purchasing an entire building and occupying a portion of the space. Most businesses of small or medium size don’t usually need the entire building to operate. If you occupy roughly a third of the building and then lease it out to other small businesses, the added cost of the initial purchase can eventually turn into gains from the lease payments.
The advantage to simply leasing is that you are not invested in that lease for the long term. After the term expires, you have the freedom to move your business elsewhere as it seems prudent. It’s also simple. You only have to worry about the maintenance of your own space. Often you can rely on the property owner to cover some of the general maintenance associated with the space. The disadvantage to leasing is that if you stay on that lease for over ten years, the costs become much higher than if you had simply owned the building you leased into and then collected everyone else’s rent payments in that building.
The clear advantage to owning an entire building is that you inevitably save money and even make some profit. This is a big investment decision though. You will want to know ahead of time that you want to stay at the given location for the long term. Our agents advise planning to stay in ownership of the property a minimum of 3-4 years before you start to see the benefits of property ownership. Realistically though, you’ll be planning to stay about 10-15 years. This means that you will need to project where your business will be in that span of time. Some of this depends on economic factors.
Finally there is the added headache of your tenants, which can potentially become your biggest nightmare. You will have to upkeep most of the property yourself. If tenants know that you own the property, they will constantly be coming to the space that you work to talk to you about their needs. Luckily a good remedy exists for this, which is hiring a property management company to look after all of this for you. By hiring a property management company, you can simply be “another one of the tenants,” even though you are the actual property owner. Nobody has to know that you own the property. Meanwhile the property management company will make the most cost effective improvements to your property and even make suggestions on how to increase the property’s value.
In the final analysis, although it takes a little more planning and capital, owning a property for the long term has significant benefit. If you do not have a lot of capital and/or know that your business is likely to be moving every couple of years, then choosing to lease will be your best choice.