Buying vs. Leasing Commercial Real Estate

Buying vs. Leasing

Buying vs Leasing CRE

Whether you are starting up a new business or moving an ongoing one to a new location, you will likely run into a dilemma – buying vs. leasing commercial real estate. Both have notable pros, and both have cons, which is why you need to be careful when weighing them out. So, we will use this article to elaborate on these pros and cons. Hopefully, this will give you a better idea of how to approach this often tricky problem.

Buying real estate

At first glance, buying commercial real estate for your business seems like a natural, straightforward idea. By doing so, you don’t have to worry about rent or dealing with landlords. If your business is profitable, you will likely pay off your loan in a couple of years. If not, you can still choose to rent out your property, and hopefully, pay off your loan solely from that. An easy choice, right? Well, in actuality, there are important factors to consider that may deter your decision to buy real estate.

Pros

Apart from what we’ve already listed, buying commercial real estate gives you the freedom to reorganize it as you see fit. If you feel that it is hurting your business, you can easily renovate and remodel your commercial space to fit your business needs perfectly. Whether it is extra storage space, more room for offices, or a complete rework of the property layout – it is all up to you.

And if, and once, you decide to retire, doing so is much easier with the preowned property. You can lease it to other businesses and get a nice bonus atop your retirement check. Or you can sell it and invest in property better suited for retirees. Therefore, buying your commercial real estate gives you both short-term and long-term benefits.

Cons

On the other hand, buying commercial real estate is a substantial financial investment. If you can afford it out of your savings, great. But if not, you will have to consider financing options. If we focus on Austin, you will have to pay $281.07 on average per square foot. Depending on the size of the property, this can be quite a costly investment. And there is no guarantee that it will pay off.

Keep in mind that businesses fail for a multitude of reasons. Even if you have a top-notch idea, you can mishandle your marketing, not hit your target demographic, or simply be a victim of corporations. And having to pay off your mortgage after failing is a situation you really don’t want to find yourself in. You can consider selling your property. But there is a good chance that the value will be lower than when you bought it.

Leasing real estate

With all that we have listed so far, you are likely to at least consider leasing commercial real estate for your business. After all, if you feel that your business comes with a fair bit of risk, you don’t want to make any permanent commitments.

Pros

Let’s say that you’ve decided to move your business to a new area. You’ve done your market research, organized the commercial aspects of your business, and found office moving professionals that are right for the job. Unfortunately, even with all that preparation, and proper organization, there is no way of knowing whether you’ve made the right call. After all, no one can see into the future. A booming market with relatively low competition in your industry can easily turn. The completion can quickly come in and potentially beat you. Or the market can lose its potency. In either case, you’d be able to cut your losses quickly and start your business elsewhere rather than deal with the complex process of trying to sell commercial property.

In short, leasing commercial property gives you freedom. Freedom to find the best location for your business and move it there. This fact alone gives you breathing room to experiment with your business and explore different options. You can test out a market and see if your business can gain revenue. If and when it does, you can see about purchasing a property. If not, simply close the shop and move.

Cons

If you consider long-term expenses, leasing commercial real estate is expensive. The average asking rent for commercial real estate in Austin is $42.69 per square foot. Therefore, if your business does take off, it won’t take very long for your lease to become less and less cost-effective.

Furthermore, you will have to deal with the owner. Plan on making any changes? Well, first you will have to get the OK from them. Is there a problem that they need to fix? Then you will have to go through the arduous process of convincing them. If your business is doing well, they might even decide to up your rent. So, leasing commercial real estate can be stressful, depending on the owner.

Final advice on buying vs. leasing commercial real estate

As we said before, deciding between buying vs. leasing commercial real estate is rarely easy. There are a lot of factors to consider and risks to weigh out before you commit. The safest course of action is to always lease commercial real estate if you are dealing with an unknown market. Even if you situate your business properly, it will likely take years before it truly takes off. Once that happens, you can consider buying. But doing so before that happens is usually an unwise choice. Buying commercial real estate is an investment, just like any other. And you need to take stock of both long-term and short-term implications before you make a decision.

Guest Blogger – Jimmy Riddell spent decades helping people organize relocations and seeing them through. Now, he uses his ample experience to write helpful articles for companies like USA Moving Reviews.

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