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Should Your Small Business Buy or Lease Commercial Real Estate

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Should Your Small Business Buy or Lease Commercial Real Estate

Every business owner will have to acquire headquarters for their organisation sooner or later. An office space is essential for every business because it will be the place where ideas are formulated, strategies are created and meetings are held, among other things. However, deciding whether to buy an office space or lease it is always a tough choice. Both options have their advantages and disadvantages and choosing one option over the other will depend on your business goals and budget, as well as your current business success.

Nevertheless, both buying and leasing of real estate are a considerable investment, and small business owners have to decide between having a permanent residence or a temporary one. Leasing an office space gives you the flexibility to move once you find a better place while buying an office space gives you ownership of the property and the opportunity to do with it as you please. Let’s have a look at strengths and weaknesses of both, which might help you decide on what is the best choice for your business.

Buying real estate for your business.

Every business owner perceives buying an office space as reaching a milestone that represents business success. After all, if you can afford to buy real estate, it means your business has grown and incomes are well on their way. The fact is that every successful business owner will eventually buy a permanent residence for their business, but the question is whether you should buy it early on or wait for the right moment to do so.

The advantages of buying real estate for your business are a permanent address and the fact that you won’t have to move from one place to another anymore. Others will be able to find your business headquarters easily and there won’t be any confusion as to your current location, and whether you have informed your associates about your new whereabouts. Furthermore, the place is yours and you can shape it and decorate it as you see fit.

The disadvantage of buying real estate is that you’ll have to be able to pay a large sum of money at once or pay it off on monthly basis, which is an expense that doesn’t allow any flexibility. Besides the fact that it costs a lot, having a permanent residence means higher taxes and bills, especially when you decide to expand your business further and hire more employees. Selling the property can be problematic and it can take a lot of time because the real estate market is constantly shifting due to the economy and you may not get the price you wanted. Buying real estate is probably more suited for small businesses that have developed stable revenue and will continue to gain profit in the future.

Leasing real estate for your business.

Many small businesses operate from rented office space and usually move around a lot before they find a more permanent home. The flexibility that leasing a commercial property offer is picking where you want to house your business and for how long. This allows you to manage your budget and easily relocate your business when the need arises.

Leasing an office space is more suited for startups that have grown past the stage where you can do most of the work from home and now you need an office, but you still can’t afford to buy real estate. It’s also more suited for small businesses that are struggling to establish a stable foothold on the market and need to spend their budget on marketing campaigns instead of permanent residence.

The advantage of leasing real estate is that you can rent an office space for a short period of time and focus on business-related tasks and growth, while saving money by paying the rent only instead of buying a permanent residence. Furthermore, you can move out when you want to or when you find a better offer. However, some landlords will ask you to sign a contract stating that you will stay on premises for an agreed period of time, but most of them just want a deposit upfront which is usually a month’s worth of rent.

The disadvantages of leasing real estate are the facts that you are not using your own property and that you can get kicked out by your landlord, even if you are paying rent, if they decide to do so. Furthermore, staying on rented premises for a prolonged period of time can cost more than buying a property, so make sure you have a more stable solution in mind. Also, landlords are responsible for maintenance and insurance, so you may find yourself in problematic situations concerning delayed repairs or similar issues and inconveniences.

The question of buying or leasing real estate for your business depends on your business goals and finances. Leasing is more suited for small businesses with financial difficulties, but the ultimate goal for every business owner should be buying their own property.

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  • Carrie Wood
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    Nice article. One thing most businesses are not aware of is that the supply of leasing options to purchase options is at least 10 to 1, and sometimes more like 50 to 1 or 100 to 1 (depending on where the tenant is located). In my experience, 95% of tenants start out thinking of buying a building and fewer than 1% end up doing that, based on supply and demand.

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