If your company is growing or downsizing, you may soon realize that the amount of space needed to conduct your daily business activities is changing, requiring you to relocate from your existing location. Over the years, I have met with numerous clients unsure whether they should buy or lease their next commercial space. This blog post reflects upon some of the pros and cons of owning versus leasing.
When buying is best…
Location, location, location! Many successful business owners will tell you that a great location is hard to come by. Whether you are seeking high foot traffic or proximity to suppliers, securing the ideal space by purchasing it may preserve one of your most important business advantages.
Rid yourself of the landlord woes! Some property owners can subject tenants to an endless list of limitations and restrictions. In addition, rent that keeps rising without mercy can sometimes stunt business growth. If you are tired of being tied down by red tape, purchasing a property could free your business, allowing it to soar towards its full potential.
Build your personal wealth! While there are no guarantees in business (or in life), many successful entrepreneurs have benefited from great commercial real estate investments. With this logic in mind, owning the space can build wealth apart from your operating business.
However, keep in mind…
If the above motivations appeal to you, perhaps purchasing commercial real estate is the right choice for you. If so, there are a few things you should keep in mind.
Think long-term! While committing to a low interest rate may seem ideal today, interest rates can rise down the road, which can create financial pressure for the ill-prepared.
Run the numbers! Purchasing commercial real estate is no small undertaking and the road may get bumpy at times, so before you commit, make sure your business has the resources to support this commitment moving forward.
Protect your business! Hidden building defects and environmental contamination are legitimate concerns, which is why due diligence is important. Get a building condition inspection and environmental assessment before committing. In addition, seek out qualified professionals to help ensure that there are no issues related to land title, zoning, outstanding taxes, liens, easements and other potential problems with the property.
When leasing is best…
Limited working capital! Not all businesses are able to (or want to) commit the amount of capital required to own a commercial space. For some, funding growth is a bigger priority. There is nothing wrong with that.
Unstable business needs! One’s business needs are not always clear, especially during periods of rapid change. Because of this, it may be wise not to commit by purchasing a space. Leasing offers business owners the opportunity to wait and see how their business needs will evolve with time.
Spare me the hassle! Truth be told, some people are just not about the hassles of commitment, which is understandable given that ownership often comes with a long list of responsibilities and potential problems. If this is true for you, it may be better to lease for now and focus your efforts on nurturing business growth.
However, keep in mind…
If the above reasons align with your current business needs, perhaps leasing a commercial property is the better option for you. If so, below are a few things you should keep in mind.
Flexibility is a two-way street! While you may appreciate not having to commit to your business location, your landlord may decide not to renew your lease at some point, which would force relocation and its associated costs.
Rules, rules, rules! Property owners can impose significant restrictions on your ability to use and modify the space. There may also be limitations with regards to signage rights. Being clear about these things beforehand will minimize frustrations down the line.
Hidden costs! Get clarity on what you will be responsible for paying with regards to property taxes, insurance, utilities, security, and any major equipment repairs such as heating, ventilation, air conditioning, etc. Indeed, such expenses can really add up over time! You should also find out who is responsible for maintaining the common areas such as washrooms, entrances, parking lots, etc.
Surely, each option comes with its unique advantages and drawbacks, but hopefully this article has shed light on the right path for your business. Remember, while some may pressure you to commit one way or the other, ultimately only you will know the best option for your current business and financial situation.