Commercial Real Estate: Should I Buy or Lease?

One of the numerous concerns a new business owner must consider is where he or she will conduct business. For some, running a business out of their home is a feasible option. However, many business owners realize the limitations of this option. If you are a new business owner who is interested in operating out of a designated commercial space, the next question is whether you will rent a space or purchase a commercial property. There are advantages and disadvantages to both of these options. To decide which is best for you, you will need to take a close look at your business goals, financing options, and long-term plans.

Pros and Cons of Renting Commercial Real Estate

Leasing commercial real estate may seem like the go-to option for many business owners. Renting a space does not require a down payment which significantly reduces the amount of liquid capital that is tied up in real estate. Renting also allows for a greater degree of flexibility in the future. However, leasing may not make financial sense in the long term. When you lease a commercial property, you do not accumulate any equity or benefit from the property’s appreciation. Commercial real estate rent can also be quite expensive – especially when considered in the long term. Often the amount that a business owner pays in rent is greater than what he or she would pay in mortgage payments for the same space. Tenants typically cover rental insurance, utilities, and property taxes in addition to monthly rent.

Pros and Cons of Buying a Commercial Property

The biggest hurdle for entrepreneurs who want to buy commercial property is financing. Commercial real estate loans typically require a down-payment that can range from 10 percent to 40 percent of the property’s value. Acquiring a commercial real estate loan without an unreasonably high-interest rate may be next to impossible for some new business owners. In addition to upfront costs, business owners who are interested in buying must also consider the cost of liability insurance and unexpected expenses such as repairs and maintenance. On the other hand, buying a commercial property allows you to benefit from the property’s increased value. The appreciation of the property can add up to massive savings in the long run.

Call Us Today for a Consultation

Buying commercial property has a larger upfront cost but may be more cost-effective in the long run. Leasing a commercial property decreases your initial investment and may allow for greater flexibility as your business changes and grows. There are pros and cons to each option. For sound legal guidance about buying and selling commercial real estate, business lease agreements, and much more, contact a Naperville business lawyer at the Gierach Law Firm. Call 630-228-9413 for a consultation.

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