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Should You Buy or Lease a Commercial Real Estate?

Many business operations occur in commercial spaces, from standard offices and storefronts to factories and warehouses. Whether you’re expanding a business or launching a new one, you’ll have to choose between buying or leasing commercial real estate.

The smartest approach is to understand the advantages and disadvantages of each option.

Buying A Commercial Space

Advantages

Appreciation: Most commercial properties increase their value with time. You may sell it in the future for a sizeable profit, which you can use to purchase a larger space, invest in new business ideas, or any other personal goal.

According to Shane Perry, a short-term business loan specialist at Max Funding, buying a commercial space is a wise move. Perry says, ” After spending months indoors, people are excited to go out and gather and this will revive experiential retail. This is an excellent time to invest in commercial real estate.”

Equity: As you settle the principal amount and internet, your stake grows. With this equity, you can have collateral for other financial needs.

Tax-deductions:The depreciation of the building and its contents are tax-deductible.

Rental potential: You can lease the property to other businesses for a stream of passive income.

Disadvantages

Sizeable upfront investment: You’ll have to bring out a large sum of money for the down payment.

Maintenance expenses: Once you become the legal owner, you become responsible for maintenance and repairs, insurance, and property taxes.

Fewer options in a competitive market: Depending on the location, you may not easily find a property that fits your budget.

Lack of flexibility: You may have to put some of your plans on hold until the mortgage is paid off.

Leasing a Commercial Space

Advantages

Affordability: Rentals are often just a fraction of the property’s market value. Leasing allows you to establish the desired location with a more limited budget.

No upkeep expenses: The landlord takes care of most maintenance and repairs. If there’s a leak, you can just leave the area and come back once it’s fixed.

Flexibility: You’re free to continue using the space or move into another at the end of your lease.

Tax breaks: You can apply for deductions on monthly rental and operating costs.

Disadvantages.

No equity: No matter the rent or length of your stay, leasing doesn’t convert to an ownership stake in the commercial property.

Rent hikes: Rents are never fixed, making it difficult to budget for the long term.

Excessive rent: Some cities have rentals that might be higher than the average mortgage in most places. However, due to the pandemic, rent has declined in many key cities as more people adopt a work-from-home setup.

The Bottomline

Buying a commercial space is a clever move if you intend to build equity or sell/lease the property in the future. However, you have to prepare a sizeable amount for the down payment and upkeep.

Leasing is ideal if you want flexibility and freedom from ongoing property maintenance. However, there’s no opportunity for equity, and you’d have to endure rent fluctuations.

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