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Should you buy or lease commercial real estate for your business?

Whether you are taking your home-based office to the next level or establishing a brick-and-mortar retail business, the decision to buy or lease commercial real estate is in your near future.

There are many factors to consider when making this choice.

Benefits of leasing

Unlike buying, leasing is temporary. If a particular area of the city is all the rage right now, lease a building in that area. Where buyers can get stuck in an area that loses popularity, leasing gives you the flexibility to move with the market.

If your business is new or you’re not sure you’re going to bring in profit right away, leasing may be the best option for you. You’ll save money on initial costs and won’t have to worry about repairs and maintenance on a large scale.

If the market is not quite right to buy or if you can’t find the right space, leasing is an excellent option to continue operating until you do.

Benefits of buying

Buying may include more cost up front, but it will likely be more financially effective long-term, depending on the amount of maintenance the building requires. Remember that real estate is an investment and this property will become an asset of your business that you can use or sell. You may experience loss of liquidity and a shortage of cash flow for a time. But if you can bring in profits immediately, this may not be an issue.

When you choose to buy, you free yourself from the ever-changing rental market. Your lease could come up at a bad time, and you could be stuck with a big increase in rent. If you buy, the property is yours at a fixed rate. You may need a mortgage, but the monthly rate won’t increase over time.

However, you are taking on a large fiscal responsibility with the purchase of any real estate. Repairs, maintenance, construction, tenant management will all fall under your purview as a property owner. Do you consider this a benefit or a burden?

Assemble your advisors

The process of leasing or buying a commercial real estate property is extremely complicated, and you will want to consult advisors before making any final decisions. Talk to your accountant, an experienced lawyer, a commercial real estate broker and a mortgage broker before making any final decisions. Their expertise will be invaluable as you make one of the biggest business decisions of your life.

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