Numerous small business owners wonder whether they would be better off buying or leasing commercial industrial space. More specifically, they want to know the costs associated with each one. Buying and leasing both come with their benefits, and it is vital to understand each option thoroughly, so you can do what is best for your business.
Benefits When You Decide to Purchase
Purchasing comes with numerous benefits. To start, there are low financing costs. Current interest rates are at very low points, and you can take advantage of them. This allows you to buy equity rather than waste time and resources paying a landlord.
When you own your property, you are locked into a fixed overhead. You know exactly what your mortgage is and how much you need to pay each month. This allows you to plan your overall costs more effective going forward. From there, you can make renovations as necessary. When you have a landlord, you may not be able to change certain aspects, such as the interior color or building a new addition onto the property. This stability is preferable for businesses that plan on sticking around the same area for a while.
Many businesses, even ones that are successful, may need to take out a loan at some point. Some lenders will require you to put up collateral. Some businesses will offer equipment they own, but banks will be more likely to provide you a loan if the collateral is property you actually own. Your property has a much higher value than equipment, so you can get a loan in the exact amount you want rather than settling for something less.
Additionally, when you purchase, the property will most likely appreciate in value over time. If you plan to sell the property at the bottom of an upcoming real estate cycle, then you could turn a profit by selling.
Another perk of purchasing is that you can sublet certain areas you do not use. As an example, if you purchase an office building, you may not need every floor. You can sublet those areas to other businesses and bring in additional revenue this subtlease activity brings in passive income that can help your business cash flow during slower periods.
Benefits When You Decide to Lease
While many small business owners will want to buy, others will prefer to lease. This can be a valid option due to the fact you acquire more liquidity. You pay less up front, and many business owners find they spent a sixth as much as they would when purchasing. With leasing, all you need to put up is the security deposit, pre-lease inspection fee, possible broker’s fee, and attorney fees.
There are also tax benefits to take into consideration for leasing. Purchasing comes with tax advantages, too, but with leasing, you can deduct the lease payments, property insurance, property taxes, and utility payments. Some business owners will find they can deduct the entire amount lease payment for tax purposes.
How to Purchase Commercial Industrial Space
When you want to purchase commercial real estate, you first need to ask yourself a number of questions upfront. These questions include:
- What property will you benefit from most?
- What kind of location is ideal?
- What is your situation regarding financing or cash?
- Would you want to partner with someone else to buy the property?
- How much risk are you willing to tolerate?
- What will you need as far as property management?
From there, it helps to learn some real estate vocabulary so that you know precisely what you are getting into. Learn about capitalization rates, vacancy rates, ad valorem, and more. Next, you need to visit a ton of properties. You never want to purchase the first industrial space you visit because you need to know what factors mean the most to you.
You then need to figure out your financing to see how you will be able to purchase the property. This calculation involves going to different banks and credit unions to see what kinds of interest rates you qualify for. This exercise is also an excellent time to look at your credit rate and take steps to improve it.
Finally, you need to find experts to help guide you through the process. No matter how much homework you do, it helps tremendously to have people by your side who have been through this process numerous times before. At the very least, you need to bring a mortgage broker, commercial realtor, and accountant onto your team. This is particularly important when dealing with complicated property, such as industrial space, where there may be environmental concerns to take into account.
Get the Focus You Need with Royal Commercial Real Estate LLC
The team at Royal Commercial Real Estate LLC are the best in Phoenix, Arizona, when it comes to helping business owners get the industrial space they need. Whether you decide on buying or leasing, our experts will guide you through every step of the process. Contact us today with any questions or comments to get started.
