“Should I buy? Or should I lease?” This is a question that seems to plague businesses big and small and unfortunately, it’s never a simple answer. This is because the decision is dependent on so many unique variables, from the business owner’s goals to the business’ growth projections. Below is our guide to buying or leasing, which includes details about your options, the top 3 reasons to buy or lease, and advice on where to start. We hope it helps guide you through this age-old question.
you should buy if…
You want to build your personal wealth
Commercial real estate has been a great investment for many business owners who want to build equity. While there are no guarantees, owning can build personal wealth separate from your operating business. Asset appreciation is a huge pro for many business owners when compared to paying rent every month.
Your business has steady and/or specific requirements
If your business size and requirements are expected to remain steady for the next 5–10+ years then owning your business’ location may be the right option. There also may be financial advantages to owning if your business requires very specific and expensive space improvements. An example of this is a dentist who requires lots of specific improvements, plumbing and equipment in an office.
Security is important to you
Owning provides a sense of security that leasing does not. You have more control over your business’ premises without the limits, restrictions or changes a landlord might implement (but don’t forget stratas can implement rules too!)
You should lease if…
You want to focus on building your business
Building a business takes time and money, as does owning real estate. Depending on your business model and your business goals, there may not be enough working capital available to fund both your business’ growth and to purchase a commercial property. Some business owners choose to invest in other things, including reinvesting capital into their business, where they may receive a better return.
Your business needs are changing rapidly
If your business is growing, downsizing, or changing in another way that will see your space requirements change then leasing is a better option, at least as a short term solution until your space requirements stabilize.
You want a hassle-free workspace
Owning your commercial property means being your own landlord which comes with additional responsibility. These responsibilities can take time that you may prefer to spend working on your business. If you lease then the landlord or property manager will look after things from everyday maintenance to parking to snow removal.
There are a few items that will impact your decision that are out of your control. These include:
Economic Forces: Depending on if you are buying or leasing these might include interest rates, mortgage/lending rates and options, economic forces, and of course current real estate market lease rates and prices.
Timing: Opening a new business or relocating an existing business takes time. We recommend starting to research your real estate options 1 year to 6 months prior to your lease renewal date or requirement change. This will provide time to explore your options, engage advisors and give you more leverage in negotiations.
Availability & Location: If your business needs to be in a specific area then this will limit your options, you’ll be at the mercy of what is available in that location. For example, some retail hubs are only available on a lease basis.
Where do I start?
Step 1: Ask questions
There are many people in your business as well as external advisors who can help you with this decision. Asking yourself some questions to help clarify your business and personal goals will tell you what makes the most sense for you and your business. For example:
Where do I see my business in 5/10/20 years?
- How many employees do you have?
- Have you expanded your product or service offering?
- What will you need to achieve these goals?
What are the financial goals?
- Where should I spend my cash?
- Do I want to reinvest it in my business or into an asset like real estate?
What are my customers’ needs?
- Do they need to be able to visit my location often?
- How will they find me and get to my location?
- Where do they live, work and/or play?
What are my employees’ needs?
- Where do they live?
- How do they get to work every day?
- How much space and what equipment do they need to do their job?
- What do I need to offer to be a competitive employer?
What real estate options are on the market?
- What is available in my desired location?
- What is available in my required size?
- What is available now, currently under construction, and/or being built soon?
Where to find answers
- Real Estate Advisors
- Business Advisors
- Financial Advisors
- Research Companies
- Your Employees
- Your Marketing Department
Exploring your real estate options always takes longer than you think, starting the conversation early on not only gives you more options, it also gives you more negotiating power. If your lease renewal is coming up or space requirements will be changing in the next year, we encourage you to reach out. We would love the opportunity to help you understand your real estate options.