Should you buy or lease space for your business?

There are advantages for both buying and leasing real estate for your business depending on your own interests. Your interests regarding financing, budget, commitment, and other factors should guide your decision. So, for now, my answer to the question is “it depends”. To make this post worthwhile though, I’ll note some points for you to consider to help make your decision.

In my classes and consulting sessions, I hear many myths and confusion over this topic. Some people are concerned of the extra cost of buying real estate – buying is usually less costly than leasing. Some people are concerned about being “stuck” with real estate they own should they shutdown or move their business earlier than expected whereas they believe they can more easily terminate a lease early. Neither is often true. Let’s list some points to consider now, and I will try to be neutral since I don’t know your interests yet.

When owning real estate, you will accrue equity while paying on the loan which is value for you when you sell. And you can draw a line of credit on that equity to use the funds for your business or other purposes.

Real estate you own can be leased to a tenant when you leave. You become a landlord and your tenant’s rent now covers your loan payment and you continue to accrue equity.

Buying can cost more than leasing upfront because of down payment requirements by the lender and closing costs.

Whether buying or leasing, you will likely have comparable costs building out the property to set up for your business.

Leasing is not always safer in terms of early termination. By default, tenants are responsible for paying the remainder of the lease term unless the lease provides for less or no early termination penalty.

Leasing can be easier upfront because there is no loan application subject to approval.

Even when leasing real estate, you will likely be responsible for covering the cost of maintenance and repair or perhaps even coordinating it.

When leasing, tenants may need permission from the landlord to modify the space. Yet, permission may be needed from municipal officials to modify your owned real estate.

Whether owning or leasing, monthly costs may still be comparable.

Note: There are multiple types of leases for commercial real estate. Here is another blog post with video with more information: https://veteranrealty.us/commercial-leases/

So, should you buy or lease space for your business? There are a number of other factors to consider when assessing whether buying or leasing real estate is better for your business plan. In this video I cover this topic in more detail. I highly recommend consulting with a commercial real estate agent and business consultant. They can help. There is additional information to help with real estate planning for business at https://veteranrealty.us/good-info-to-know/