Should You Rent or Buy a Commercial Space for Your Business?

There are many choices you need to make as an entrepreneur and small business owner. One important decision you need to make are regarding real estate. You might need to sign lease agreements that last multiple years or take on multi-decade mortgages.

It can be overwhelming by all the real estate options available. You need to weigh the pros and cons of each choice so you can make the best decision for your company. Keep reading to learn everything you need to know about renting vs. buying commercial space.

Advantages of Leasing

• There is no down payment. You do not need a large amount of money for a down payment to lease a space. You might need to pay a renter’s fee and might even be responsible for at least the first month’s rent when you sign. Most down payments for commercial properties are 10-40% which may require you to get a startup loan.
• No need to worry about repairs or maintenance. If there is an issue with the building or property, you do not have to cover the costs to address it. This can help your maintenance costs be low while you run your business.
• Moving is easier. When your lease ends, you can move to a different location easily where your business will be more profitable or save money. If you own, you need to go through the process of selling the place and find another space to buy or lease.
• Use the startup funding for other costs. Instead of tying up your funds in property expenses and sown payments, you can focus on marketing your new business and investing in other infrastructure to get your company off the ground.
• Less risk if you close. If you need to stop business or return, you can wait for your least to end or break it with the fees set in the agreement. You do not have to worry about selling the property.

Disadvantages of Leasing

• Dependent on rental rates. Your landlord sets the rent amount, and you are expected to pay it. You might be able to negotiate it. This fee is different from a mortgage that you can refinance every few years.
• Your renewal may be rejected. Some business owners rent from the same location for a long time, but others have had landlords terminate their lease unexpectedly. If this is the case, you might only have 30-90 days to leave the property which will require you to find another one.
• You are limited in the changes you make. You need to follow the rules the landlord sets for you such as limiting how much construction you are allowed to do.

Advantages of Buying

• You are investing in yourself. When you buy a commercial space, you create equity because you are investing in something you own. In the future when you decide to sell, you will get your investment back and turn a profit if the real estate market is improved.
• You can rent your space. You can become a landlord and rent the space out. The investment can be financially beneficial to you long after you leave the workforce.
• Your mortgage will not change. You do not need to worry about having prices raided if you have a fixed mortgage.
• You can make changes. You can change any construction changes to bring your vision to life.
• Tax breaks can offset additional expenses. There are several tax breaks including deductions for the interest you pay, depreciation, and capital gains.

Disadvantages of Buying

• It is harder to move. You cannot close your doors and change locations easily if you outgrow your space or want to downsize. Buying is the best option if you do not have plans to move.
• You are responsible. You are responsible for all repairs and maintenance. Make sure to factor these costs before buying a space.
• The up-front cost. You might have difficulty buying a space if you do not have investment funding.

The Bottom Line

Do your research and make the best decision possible for you with the information you have. Depending on your situation, buying or leasing might be better for you.