Is Leasing A Commercial Property Worth It For Small Business?
Securing the best place to house your business is very important to secure success. However, many small business owners have to deal with the dilemma of whether to buy or lease a commercial property for their business operations. If you are someone in a similar situation, you need to consider many variables to make the right decision. Here are some insights that can help you decide whether leasing is the best option for your business.
Your location defines a lot about your business. If your operations require customers coming to you, you will need a place where it is for them to do so. This in turn results in fewer choices on location and can make your decision simple. When the area that you require is too expensive to buy, your only choice is to lease and is probably the best option too. Leasing gives you the advantage of running a business on a prime location, without spending too much on buying the commercial property, although buying can be a better option for the long term, but if your business is just starting out then leasing is always preferrable.
Cost benefits analysis
It is always best to start out with an analysis on your current financial status and perceived benefits before taking any decisions that concerns your business.
The main advantage of leasing a commercial property is that the initial cost requirements for leasing is generally lesser compared to that required for making a purchase. However, purchasing can be advantageous if you want to get any appreciation in the value of the property. You need to have a good idea on your cash flow to know whether you can set aside the money needed for purchasing. If purchasing seems to be too costly or is not fruitful in long term, leasing is the best option for you.
You must make sure to pay attention to the short term and long-term implications of leasing or purchasing. If you company’s operations are limited to short duration in the particular location, leasing is the obvious answer.
Even if you are directed towards a long-term thinking but do not have the circumstances to make a purchase, you will have to include these long-term goals into your leasing plan.
Here are some common factors that usually support your decision to lease.
When you are still in the early stages of your business and cannot allocate a huge sum needed for a purchase, leasing seems to be a better choice. For leasing, your initial cash expense is limited to the security deposit and the rental payment. Your capital will not get stuck in real estate and you will be able to make use of it to respond to market changes and expand your business.
You can cut down on your maintenance costs when you are leasing, as it is usually imposed on the landlord. You can also concentrate more on your business than on managing your commercial property.
If you are looking for a temporary location and are expecting to move when your business starts to grow, leasing is the sensible decision. The current location that you have chosen may not be helpful for your future needs and you may have to change your location based on the market needs.
It may be difficult to acquire credit for a mortgage on the commercial property when your company is new. But leasing the commercial property under the same circumstances is easier and is much more beneficial for companies facing financial difficulties.
Purchasing a commercial real estate requires more effort into research and analysis as it more likely to be a long-term facility. But if you are not able to fix a suitable commercial property for purchase but can only find leasable properties, leasing is the only option available.
As mentioned earlier, the main advantage of purchasing is the appreciation in land values. But if the property that meets your needs is located in an area where real estate values are declining, you need not think again about purchasing. Leasing seems to be the best choice in such cases.
In most of the lease types, the landlord takes upon the duty of paying taxes and other expenses related to the property. By leasing, you can also avail such tax benefits and deductions.
While leasing reduces long term risks and responsibilities, it has its downsides too. Some of the disadvantages of leasing are
Leasing can cost you more on the long run. You may have to pay more each year than the year before due to annual increases in the rent and renewal cost.
You may not be able to exert the required degree of control on the property. If sometimes the owner wants you to move out, your business may be disrupted.
- Lack of Equity
- Hidden costs and obligations can make it difficult for you to continue your business operations smoothly.
Leasing can be a worthy option if you are looking for a commercial property that is easy to replace and does not require a huge capital investment. You should always weigh down all the factors like finance, tax, legal and business specific situations to know whether leasing is the best way to acquire a facility for your business.