Quick Guide to Buying or Leasing Commercial Space

It’s usually a good idea to purchase a property when you know you will remain in a location for ten years or more. In addition, consider buying if you think you can get the property at a below-market price. In that case, the invested equity, debt service and tax benefits to the owner can make owning more advantageous than leasing. It is really a matter of cost. You need to understand the costs associated with buying a facility and compare that to the costs associated with leasing similar space.

Specialized industries that have heavy and unique infrastructure requirements such as manufacturing are generally better off buying their space. If you have to spend a lot of money to outfit a building to meet your needs, you want to own those improvements. Distribution facilities on the other hand are interchangeable and can usually be leased cost-effectively.

Synergy Real Estate is well adept to perform lease vs. purchase cost analysis that will help you make an informed decision on your next acquisition.

The following are the advantages (pros) and disadvantages (cons) of Buying versus Leasing:

BUYING BENEFITS

LEASE BENEFITS

·      Mortgage interest is tax deductible

·      Facility & Equipment Depreciation

·      No rent increases or risk of eviction

·      Benefit when sell if the market is good

·      Stay long as you wish, you control space

·        Rent is tax deduction as business expense

·        Flexibility to move at lease expiration

·        No loss if owning in a bad market

·        Sublease extra space

·        No capital requirement

BUYING DISADVANTAGES

LEASE DISADVANTAGES

·      Requires capital to secure financing

·      Property values may decline

·      Legal and regulatory risks

·      Time and energy to maintain facility

·      Unexpected operating costs

·            Rent increases and risk of eviction

·            Loss of revision of property value

·            No equity build-up

·            May be required to move at end of lease

·            Landlord controls facility use

Synergy Real Estate advises its clients to double check with a tax consultant and attorney to make sure your decision is beneficial from a tax and legal perspective.