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May 21, 2018

Buying vs. Renting a Location for Your Business

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FF

Fora Financial

Staff

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If you own a business that requires a brick and mortar location, you should determine whether buying or renting a space is right for your budget. In this post, we’ll explain the pros and cons of buying or renting a business space, so that you can decide which option you should pursue.

Should You Buy or Lease a Business Location?

Buy Your Space

Does location matter for your industry? Or will your business be relying on a prime location to drive additional foot traffic? If so, then it may be worthwhile to buy a space that’s in a great location that can become your business’s permanent home. A specific location may be useful when it reduces transportation issues, is near suppliers, or is in a popular shopping area. If you want to buy a space, you should consider the investment needed to purchase a business location. However, it’s also important to remember that the value of the property may appreciate or depreciate depending on the local market. For example, the age of the building, interest rates, surrounding community infrastructure, and the fact that some building technologies will become obsolete, may cause your property to appreciate or depreciate quickly. If you decide to rent a space, you won’t have to worry about this.

Benefits of Purchasing Commercial Property:

  • Eliminate expensive leasing fees.
  • Avoid restrictions that may be typical when renting, such as signage, restricting competition, or parking spaces.
  • Won’t have to worry about rent increases.
Purchasing commercial property allows for easy forecasting of operating costs now and in the future, and you’ll be able to make changes to the physical structure to meet growing demands. Still, you should remember that potential challenges could arise, such as:
  • Rising interest rates.
  • Property issues such as building defects or environmental contamination.
  • Running out of money that is needed for long term investments related to your location such as equipment, technology changes, and market shifts.
Before purchasing a space, you should perform the necessary due diligence and review all expenses. If you can’t afford these costs or have other major concerns, it might be better to rent a space.

Lease a Space

It can be easier for some business owners to lease commercial real estate instead of taking the plunge and buying a space. For instance, if you have limited working capital, it might make sense to sign a lease instead of making a permanent purchase. When major changes are on the horizon, such as an expansion or downsizing, it could be best to rent until your business is more stable. Maintaining a property may also be easier when choosing to lease a space, as management company could be responsible for some of the upkeep. Still, there are potential problems that may arise when leasing. For example, your landlord could choose to not renew your lease, forcing you to relocate your business. This can be very expensive, especially if you’re given short notice. Another issue you could face is if you want to change a space to meet specific needs, and a lease agreement has restrictions. If you choose to rent a space, you’ll need to be knowledgeable about which responsibilities are handled by management and the obligations that you’ll need to handle. In addition, you should be prepared in case your landlord isn’t quick to make repairs, or doesn’t communicate necessary information. If you don’t want a landlord having control of your business’s property, this could be a reason to purchase a space instead.

Evaluate Your Current and Future Business Needs

Buying and leasing property are both valid options for small business owners. Before choosing, you should carefully review your current expenses and determine how much responsibility you want over managing a location. You could be faced with additional expenses with both choices, and neither option comes without potential challenges. Ultimately, we encourage you to take multiple factors into account before signing a lease or closing on a commercial property for your business.