There are plenty of things you need to open up a business. From the equipment to manpower, all of these components need careful planning to ensure that your business runs successfully. However, perhaps one of the most important aspects you need to focus on is the facility or property where you will run and grow your business.
You can’t just choose a property and assume that it will guarantee your success. There are lots of factors you need to consider. Arguably the most important question you have to ask yourself when it comes to your business’s real estate is whether you should purchase or lease. This article will help you decide.
What to Consider
Buying and leasing a property for your business have its pros and cons. We need to divide these factors into multiple categories and determine which option outweighs the other. Listed below is a quick list of how we can do that.
If your business is not solely focused on international or online transactions when providing services or products, you need to pay close attention to the property’s location. There is no point in purchasing a property if the location does not bring you closer to your target market. It would be better to lease a property in urban areas if the location is ideal for your business operations.
Current Cash Flow
Another thing you need to consider is your business’s current cash flow. Leasing is significantly cheaper than purchasing a property. However, this is not true in the long run. If you think your business will last for decades, then purchasing a property is the better option. We understand that not all businesses have the budget necessary for that purchase, but always remember that you can still own it through loans. Be sure to consult the services of a professional mortgage advisor to help with that.
Obviously, owning something provides you with the freedom to do anything you want with it, while borrowing something means you have to maintain its foundational structure. This plays an important part in your decision. If your business needs to change the property structure after some time, leasing it would probably not allow you to do so. On the other hand, if you would use the property for storage purposes, you may not have some leasing problems.
Land Value Behaviour
The value of the land where the property is located is an essential part of deciding whether to buy or lease. Many residential and commercial areas are slowly rising and gaining popularity, which means people would soon flock to these locations to settle or start a business. Buying a piece of land in the early stages of the town’s growth is a form of investment. Sooner or later, its overall market value would significantly surpass its initial cost. In addition to this, leasing a property where the land value keeps increasing may also cause your monthly rent payment to increase.
Keep in mind that paying for a lease means your money goes nowhere else but the landowner’s pocket. On the other hand, purchasing a property, or acquiring a mortgage loan, means your credit score and assets increase. In the long run, all of these monthly payments shall accumulate and provide you with tax relief. Furthermore, services used in your business property may also be deducted from your annual tax through tax depreciation.
Some parts or functions of the property will inevitably degenerate as time passes by. If you’re the property owner, the burden of fixing all these damages is solely on you. On the other hand, most, if not all, properties on lease put maintenance as the landlord’s responsibility. If not, at least half of the maintenance cost should be shouldered by the landowner. After all, they’d still have the property even after your business is gone. With that in mind, if you don’t want maintenance duties or you want to lessen the cost they take from your business’s budget, you might be better of leasing property instead of buying it.
Lastly, you also want to consider your business’s mobility. If you plan on relocating after a few years, leasing is the better option. However, business properties such as restaurants or service providers that plan to stay in their area for decades should instead purchase a property to reduce long-term costs.
A business real estate property is one of the most important aspects that play a major role in your success. That’s why you need to pay careful attention and planning whether you should buy or lease the property. After all, handling your finances will make or break your business.