As a business owner deciding whether to lease or buy commercial real estate can be a difficult choice. Understanding the pros and cons of leasing versus buying commercial real estate may help. Let’s explore more.
PROS
- Costs Remain Stable and Predictable – Leasing costs involve a predictable periodic outlay of cash. There are no surprise expenses.
- Flexibility to expand, contract and move as business conditions and needs change.
- Source of Financing – Leasing provides 100% financing while most borrowing requires a down payment.
- Additional Tax Deductions – Lease payments are fully tax deductible and reflect rent paid for both the land and structures. An owner of real estate cannot deduct the land portion of the investment. In a triple net lease, the tenant can also deduct operating expenses.
- Financial Flexibility– Leasing frees up cash that can be used to invest in the business for things such as inventories, salaries, and equipment.
- Location – Leasing allows a tenant to be in a premier location that they might otherwise not be able to afford.
- Technology – Leasing allows a tenant to respond to technological changes quickly giving them the ability to move to a more high tech building.
- No Repairs or Maintenance – While you may be responsible for keeping carpets and interior spaces clean, but the landlord will need to keep the building in good repair.
CONS
- Appreciation – Tenants cannot take advantage of property appreciation.
- Control – Leasing does not allow control of other tenants. In a multi-tenant property, new neighboring tenants might not conform to the image the lessee is trying to project or may simply be “bad neighbors”.
- Cost – Businesses with strong earnings, good access to financing, and the ability to take advantage of the tax benefits of ownership, leasing is often a more expensive alternative. Individuals and small firms often find that the costs of leasing and buying are relatively equal.
- Alterations – The building owner may want to make cost-saving alterations benefiting the landlord that may disrupt the tenant’s business.
- Operational Control – Tenants have no control over amenities, management personnel, etc.
- Equity – At the end of a long term lease, the tenant walks away with nothing while an owner would have been building equity in the space.
Any tenant or business owner considering whether to lease or purchase commercial real estate, in Tampa Bay and the surrounding areas, should consult a commercial real estate agent. A competent real estate agent can perform a detailed lease versus buy analysis to assist you, the client, in making the most cost-effective solution.
If you have questions regarding the decision to lease versus purchase commercial real estate in Tampa Bay, Florida please contact Pam Pester Esq., CCIM, President at Mobiliti CRE, pam@mobiliticre.com, (813) 300-2227, www.mobiliticre.com.