As you look around your workspace, what thoughts come to mind? We bet one of the first things you make note of is the space…or lack thereof. As your business grows, the commercial space that seemed so ample in the beginning has quickly become too small for your needs. Between your tools, equipment, fleet vehicles, work areas, office space and more, it would be nice to have a little breathing room, wouldn’t it? You know you need an upgrade, but what’s the best route? When looking for a new space, there are notable differences between buying commercial property versus leasing it. But, the real question is which is the better investment?
What are the benefits of leasing?
Leasing commercial space is an attractive option for many business owners looking to grow. It allows you to move into a space with limited commitment, which could be just what you need if your company continues to grow rapidly or you find that the location isn’t ideal for your needs. Leasing commercial property also allows you the freedom of running your business without the additional responsibilities that go hand in hand with real estate ownership such as major repairs, building maintenance and more.
If you’re considering a lease, keep these points in mind:
You will need to account for operating expenses.
You will need to have a clearly defined outline of who will take care of what in terms of responsibilities and expectations for yourself and your landlord.
Know that no matter your long-term goals, your landlord could have the final say in your option to renew which may force you to relocate at the end of your lease.
Be sure to find out any restrictions for renovations or improvements ahead of signing on the dotted line. Are the changes you need to run your business permitted? Is this the best space for you? Do you have to return the space to its original condition when your lease is up?
You can rest assured that the building depreciating in value isn’t a worry added to your plate.
Leasing often has several stipulations that may hinder your ability to operate in a commercial space, depending on your industry. If leasing commercial property is the best fit for you, be sure to thoroughly review potential properties before committing to a lease term of any length.
If purchasing commercial space is an option…
Though a big decision, if you’ve decided that buying commercial space is the best option for you to grow your business, then congratulations! Purchasing property is a great way to build wealth and add valuable assets to your business — so long as you have the right long-term plan in place. Owning your commercial space also allows you freedom from lease restrictions, so you can create a space that is built on your business needs. However, you’ll want to make sure that your large investment makes sense for your business plan as well.
With a great purchase comes great responsibility. So, before you buy, consider these points:
Be sure you have enough capital to buy your property without damaging your financial well-being — without touching your retirement plan.
Consider rising costs like interest rates, maintenance and more. Buying a commercial property means you’re on the hook for those costs, so your business will need to have enough cash flow to keep you stable regardless of what costs you incur — Especially if the real estate market descends deeply, while your mortgage stays the same.
Be sure your space meets your requirements. You don’t want to purchase a property only to find out too late that your new location does not encourage more customer traffic, increases supplier costs due to distance or accessibility or does not attract or retain staff due to poor structure or appearance.
Do your due diligence and invest in the appropriate insurance should you decide to purchase. Should a “worst-case scenario” ever occur, the right insurance will protect you, your family and your business.
Owning a commercial property is a great asset to have in your portfolio and, as a business owner, the freedom that comes with purchasing is often the biggest benefit. However, don’t let the purchase of commercial space mean trouble for your business finances and make sure it aligns with your business plans. Purchasing is only a good idea if you have the plan and the capital in place to support it. For example, if you’re planning to retire in the next 10 years, a mortgage is often amortized over 25 years. Will you still want to own a building after you’ve retired?
Growing your business is an exciting milestone in your company development and finding a bigger space can make a substantial difference in your productivity! Before you decide on a lease or purchase, review your finances with Darryl Smith. He will help you identify your existing assets and determine which option will be most beneficial to your long-term wealth and, ultimately, your retirement savings goals!