Lease or Purchase? Deciding for Your Expanding Business
Your dreams are coming true! You’ve successfully grown your business online and now it’s time for the next big milestone; a storefront. With so many options out there it’s hard to decide between leasing and buying. Certainly, there are pros and cons to each. Here are a few to get you started.
Leasing Pros – You will have more cash available because you won’t need to make a large down payment. You can also spend more time focusing on your business since any building maintenance issues like plumbing and electrical fall on the shoulders of the landlord. Leasing is great for your taxes too since the rent payment can be written off as an operating expense. Lastly, if the location isn’t great for your needs, you can look around and find a new one when the lease is up.
Leasing Cons – Almost complete lack of control when it comes to building maintenance and that includes the outside areas. Whether its landscaping or the cleaning company, you don’t have much say although you can file complaints with the building manager or landlord. Rent payments are usually higher than a mortgage payment, so while you don’t have to come up with a down payment your monthly bills will be higher. In addition to high monthly rent, you’re not earning equity on an investment.
Buying Pros – If you have the money for a down payment, purchasing a space for your business is a terrific investment, especially if you can afford a space with more than one unit. On top of building equity, you can earn some extra income (also referred to as passive income) by collecting rents from tenants. Making the decision to buy your space gives you control. Control over how the exterior, interior and even the parking lots are maintained. You may also be eligible for a tax break such as deducting the interest only on your mortgage.
Buying Cons – Putting a big ding in your savings account. Using up liquid assets to make a down payment and cover all the upfront costs associated with purchasing a commercial space. Qualifying for financing can be a very difficult task. If your business is newer and you don’t have much history with Dunn and Bradstreet, and your accounts have less than a five-year history, you may have a difficult time acquiring financing. You will probably be asked for personal financial statements and tax returns. Not everyone wants to intertwine their personal finances with their business. Although it is not the case every time you are taking a risk when you purchase a commercial property. Instead of increasing in value it may decline. Losing money on an investment is a tough pill for anyone to swallow.
There are many factors that go into such a big decision including the variables of your particular business. So whether you decide to lease a space or take the plunge and become a building owner the above list should help you get started.