Are You Better Off Buying or Leasing Commercial Space?

by Kathryn Hawkins

1 min read

You’re ready to make the move from your home office to a commercial business or retail space. Would you better be off buying or leasing your new location? The answer depends upon how much capital you have available, the type of business you run, and the real estate available in your area.

Here are a few factors to consider before talking with your accountant or financial adviser about which option best suits your needs and situation.

Is your business well-established? If you’re a startup, buying a building may present too big of a risk: You don’t yet know whether your business will be successful enough to support mortgage payments and other operational costs. By renting, you’re free to back out at the end of your lease’s term. However, if your business already enjoys a steady income stream, purchasing a space may be a good investment in this down economy, as real estate prices are low.

Is your company likely to keep the same number of employees? Before buying property, think carefully about your plans for growth — and how well your purchase will accommodate your vision down the road. If there’s a chance you might hire more employees (and need more space) in the next few years, locking yourself into a location long-term could prove counter-productive. Likewise, if there’s a chance you may downsize your staff and outsource some of your operations, you won’t want to keep paying the mortgage on a space that’s too large.

Are you ready for a second career as a landlord? Owning a retail or office building is a lot of work: You’ll be responsible for regular maintenance and upgrades, and if you opt to take in tenants, you’ll need to make sure their needs are taken care of, too. On the bright side, there are tax benefits to owning your own building, and you may earn a secondary income on tenant rent — rent which could continue earning income well after your business is gone. There’s also the potential for asset appreciation from the building’s eventual sale.

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