Frank X Acocella, CounselPro Lending, Leasing Commercial Property

Most public businesses operate out of commercial spaces. Those spaces include storefronts, factories, and offices. One of the most significant decisions when looking for commercial space is whether you should buy or lease your space.

It is important to remember the difference between buying and leasing properties and knowing the pros and cons between both. When property is purchased, it is either paid for in full with cash or financed through a loan. Properties that are leased are rented for a set term that must be renegotiated each time the lease is up. Several different factors go into both buying and leasing and what works for one business might not work for another.

Last month’s article discussed the pros and cons of buying commercial real estate properties. This month’s post will tackle the pros and cons of leasing commercial real estate properties.

Leasing Pros
It’s important to remember when signing a lease for a commercial property that a lease can last 3 – 10 years and the lessee gets the use of the property during that time.

More Flexibility
Leasing commercial property gives a business more options when it comes to picking a space for their business. It also allows the leaser the ability to move locations when your lease is up without having to worry about selling the property. Leasing might also allow an individual the opportunity to pick a space that would not be affordable if it was bought.

Tax Breaks
Leasing a property allows businesses to deduct the following costs as they are incurred: lease payments, property taxes, and insurance, utilities and maintenance. Leasers can also deduct the entire lease payment on their taxes.

Leasing Cons
Leasing a property also comes with an extensive list of cons against it.

Expensive Rent
Monthly rent for a leased property will most likely exceed the cost of a monthly mortgage payment on the same property. Tenants are responsible for monthly retail insurance, property taxes, utilities and maintenance costs. While they are also responsible for these costs when they own the property, it becomes cheaper because of the monthly mortgage.

No Control
Certain leases have specific restrictions and termination clauses that limit a tenants ability to control their space. When a lease expires, it is up to the landlord to determine if the current leasers stay with the property or if the monthly lease payment will be increased. It is also important to remember that if a business goes out while renting a space, they still must continue paying rent or they could face penalties.

No Equity
When a property is leased, the individual leasing the property is not gaining equity in the property. Some properties offer rent-to-buy which allows the renter the ability to apply a portion of the rent already paid towards the purchase of the property.

Should You Lease or Buy
For some businesses, it makes more sense to buy and for other businesses it makes more sense to lease. When looking to purchase a commercial real estate property, it is important to consider applying for a loan through the Small Business Administration. If you are unsure if you should buy or lease a property, schedule an appointment with a local commercial real estate agent and discuss your budget and any concerns you may have.