Does your company need a new building?
No matter whether it's the first location for a new business or
you're ready to expand to bigger and better surroundings, this new
home will surely provide a base where your business can grow and
thrive.
But before you start shopping for real
estate and picking out furnishings, you'll need to answer one basic
question: should you buy or lease the commercial property? The answer
depends on many factors, and it can have far-reaching consequences
for your profit margin. So, how can you make the right decision? Here
are the major factors to consider.
When anyone purchases a piece of
property (building or land), they generally have a larger upfront
cost than when they choose to rent. You may need to pay down
payments, pay for construction costs, pay for renovations, or cover
existing debts against the property. But as an owner, you may be able
to recoup these costs when selling at a profit.
On the other hand, when you rent, you
generally pay a monthly cost as well as some agreed-upon upkeep
expenses. The landlord may even pay for some renovations. However, in
return for this lower outlay, you don't earn any equity in the
structure if it appreciates in value. The owner keeps this.
Your company must answer the question
of whether it's better to keep your liquid assets or put them into a
large capital structure. How is your cash flow? How much of your
overall liquidity will be poured into the building? Will buying drain
your reserves? Or will you remain comfortable if other cash
emergencies arise?
Does your business need the ability to
change easily as your business needs change? Or does it need to have
a solid base on which to grow and build trust? What is the likelihood
that you may need to pick up and move in less than a decade? What
about expansion? Is your business based on location in order to draw
customers (such as a restaurant or retail store) or can it easily
move if the need arises?
Leasing a space offers an easier path
to moving, whereas owners will have to go through the process of
selling their property first. However, owning your own building does
have the advantage of being able to decide for yourself what changes
or improvements you want to make to the building or land. If you
think it more likely that you'll simply want to expand in place,
ownership may offer better flexibility.
Finally, consider how much effort you
want to expend on your building. Leasees have much less to worry
about when it comes to repairs, upkeep, and even maintenance. This
allows small businesses to put their time, money, and effort into the
business itself rather than keeping up the physical property.
While it's beneficial to allow someone
else to worry about the property, it also cedes control over many
things. What if your landlord doesn't maintain the property to your
liking? What if they are unresponsive? What if you want to make
changes to the landscape, structure, or interior? How much
decision-making power do you have? Will this cause unnecessary
friction or tension for you or the business?
Clearly, there is no right or wrong
answer as to whether to buy or rent a commercial space. Your needs
are specific to your company, your industry, and your goals. But no
matter what you choose, Heritage
Realty & Insurance
can help. Call today to learn more about
our commercial rental and sales services and get assistance.
