Should you rent or buy commercial real estate?

Posted by Travis Tollefsen on Thursday, April 30th, 2015 at 12:00pm.

One of the most important things about starting a new business or moving an existing one is having a solid commercial property. But then you have a serious decision issue – should you buy or lease. After reading this article, you will have the full knowledge about this subject so you can make a wise final decision. 

The issue with down payment

Before you can buy a commercial property you’ll typically be required to make a down payment. Usually this is a huge amount of money that will have serious impact on your cash flow. But of course, that might not be a problem if your uncle is Bill Gates, or if you can afford it. In this regard, leasing a commercial real estate is a better option since you won’t need to make down payments. You can invest the money you could have used on down payment on other areas of your business like better machinery or even advertising. 

Tax advantages of lease vs buy

Whether you lease or buy you will have to pay tax. But the smart thing to do here is to consider which one will save more money as time passes. Every single dime you pay as rent on your commercial lease is tax deductible because it is business expense. Also, tenants pay “leasehold improvements” for physical changes they make on the property. You have the opportunity to depreciate them over the time left on your lease no matter how short. This gives you the privilege to improve your tax deductions. When you buy you won’t be able to write off your down payments, making leasing a better option. 

No maintenance or repair cost

If you buy a commercial property you will have to pay for repair and maintenance of any damages that occur on your building. While this might not be an issue for some people, it is a strong point for start-up businesses to consider commercial lease over buying. If anything goes wrong all you need is call the property management and they come and fix it. 

It makes things flexible

As your business progresses over the years you might require more space or a better environment to accommodate growing staff and customer demands. As a tenant in Anchorage AK, you can leave the property and move somewhere else to test a better-suited property or follow your shifting market target. 

Avoid risk of declining real estate value

It is possible that you have found a commercial real estate of which you fall in love with and wish to purchase, but is situated in an area with falling real estate value. You can still occupy the building for your business by leasing it and letting the landlord suffer the impact of the declining value instead of you. 

Conclusion 

Your moving expenses as a tenant in a commercial lease are considered tax deductible, in case you decided to change environment. Also, lenders may not be too comfortable to help you buy a commercial property if your business is new or has suffered financial difficulties. But with the same situation, a landlord or property manager may be willing to lease. 

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