When running a business, you must decide between buying or leasing property. If you choose to buy, you can either pay in cash upfront or finance the purchase with a loan. If you choose to lease, you rent the property for a particular period. Both options have advantages and disadvantages. Let’s take a closer look at these two.
Pros and Cons of Buying Commercial Real Estate
Commercial real estate holds its value really well. It’s a valuable long-term asset as long as you maintain the property.
- Appreciating asset: The value of the property will increase with time.
- Building equity: Equity in the property accumulates over time
- Rental income: If you only occupy 51% of the building, you can rent out the extra space and earn a secondary income.
- You have control over the property, meaning you can configure the space as you please
- The upfront down payment is significant. You would have to make a down payment of 10 to 40%.
- Hard to qualify for: It’s not easy getting a commercial real estate loan with reasonable rates, especially with a not-so-perfect business credit score.
- Liabilities: You’ll be held responsible if someone gets hurt within the property.
Pros and Cons of Leasing Commercial Real Estate
Commercial real estate leases run between 5 to 10 years. If you know how to negotiate, you can get a longer or shorter term depending on what you want. But during that period, you’ll experience these pros and cons.
- Fixed monthly costs: You know how much money you’ll pay every month because maintenance and upkeep are the landlord’s responsibility.
- More liquidity: Very little of your cash is tied down to the property.
- More flexibility: Usually, it’s easier to qualify for a lease than a commercial real estate loan.
- You don’t have a passive income
- No equity, meaning you can’t benefit from capital appreciation
- Rent is expensive
- No control over the property
Both options have advantages and disadvantages. It’s up to you to decide what’s right for your business.
Here at Point High Finance, we will support you in whatever option you choose by offering the financing you need. Whether you need a commercial real estate loan to purchase the property or money for a security deposit when leasing, we can help. Contact us today.