24 May Buying vs. Leasing a Commercial Property: The Pros and Cons

The search for commercial space for a company can prove difficult, especially when it comes to deciding between buying commercial property or leasing a space. Each option has pros and cons, and we’re here to provide you with them so you can make an informed decision for your company and its employees.

Leasing Your Space

PRO: No down payment is needed.

When you purchase a property with a traditional loan, you will need to cough up between 10 – 40% of the purchase price as a down payment. Depending on the price of the building, this can be a considerable chunk of change.

When leasing a commercial space, usually, the only money you will need to pay upfront is a security deposit, typically equivalent to a month’s rent. Leasing a space allows you to put money into other important aspects of your business, such as marketing, hiring, technology, etc.

PRO: Maintenance is not your problem.

Generally, when you lease a space, the landlord will take care of the necessary building maintenance, including general repairs, HVAC, and plumbing. In many cases, the landlord will hire a property management company to manage this and interact with tenants daily. So as a tenant, you will have someone you can bring repair and maintenance issues to who is responsible for fixing them.

PRO: Better access to desirable locales.

Most of the time, if you go the leasing route, you will have access to more desirable locations like major cities and more populated areas. The reason is that substantial development has likely already occurred in areas like that, driving up the cost of buying property.

As a business owner, you want your company offices to be located “where the action is” and close to amenities that your employees can take advantage of. Being located near major highways and train stations is also a huge plus for commuters. These things are probably more attainable as a renter.

PRO: Endless room for expansion.

Leasing allows you the flexibility to expand your space as your business grows. While you are locked into commercial leases, you can always relocate to a larger location once your lease is up. There are also expansion options that you can build into your lease that allow you first rights to acquire space that becomes available in your building if you need it.

CON: Cost instability.

Probably the biggest risk that goes along with renting commercial space is the possibility of rent increases around lease renewal time. This can mean trouble for your business if the landlord wants to increase your rent by a significant amount and you don’t want to (or can’t afford to) relocate.

CON: Money spent on improvements doesn’t give you equity.

When you lease an office space, you will likely want to make some improvements to the space. It might be as simple as putting a fresh coat of paint on the walls, or it might be more involved renovations such as soundproofing or installing new countertops or cabinets in the shared kitchen.

No matter what the improvement is, you are likely paying for it out of your pocket and, in doing so, increasing your landlord’s equity in the property. You can’t take coats of paint and countertops with you to your next office space, so in effect, you are directly benefiting your landlord with each improvement that you make.

Purchasing Your Space

PRO: Equity!!!

The biggest pro to purchasing a commercial space is that you will build equity in your investment over time. As you pay off the mortgage, make improvements, and as the property appreciates in value, you are building equity and gaining leverage for an expansion should you need one in the future.

PRO: Cost stability with fixed mortgage payments.

Unlike renting, when your purchase property, your mortgage payments remain the same for the life of your loan. If your mortgage payment is $10,000 a month, it will stay at $10,000 for 30 years, or however long your loan is. The rental market can be pretty volatile (and has been in recent years), so having a static payment each month can be a huge pro.

PRO: Opportunity to lease out space for additional income.

If you purchase a building for your company and decide that you don’t need all of the square footage for your operations, you have the option to lease out the unused parts of the building to generate income.

A smart way to allow for future growth would be to purchase a building larger than what you need and rent out the extra space in the interim until you grow enough to need it for your company’s operations.

CON: Significant upfront costs.

There’s no way around it; the upfront costs of purchasing commercial property are significant. There are a number of associated upfront costs, including a down payment, appraisal fees, loan fees, legal fees, necessary repairs, and capital improvement costs. This can be a tough pill to swallow for many, as they may see that money as better spent re-invested in their business in other ways.

CON: If you break it, you replace it…and pay.

Some may see being in charge of repairs and maintenance as a con. When you purchase a property, you become responsible for everything that a landlord would typically handle for you as a renter. That means that if your A/C is on the fritz, you have to hire and pay for a repairman. If your bathroom faucet breaks, you have to buy a new one.

And if you don’t have the time or resources to handle the building maintenance on your own, you will likely have to hire a property management company to manage this for you – another expense.

Now that you have this information, you may be able to make a more informed decision on whether you should buy commercial real estate or lease an office building. If you are looking for a new office space to lease for your business, check out Prime Storage Commercial’s office listings. With various options, from small single rooms to large office suites and standalone buildings, Prime has spaces available to meet your needs.