Location and operating on commercial spaces are crucial factors in running a business. Whether you’re running an office, clinic, factory, or retail store, you’ll have to decide whether to buy or rent.
Leasing a property sometimes has a negative connotation with business owners. They may be influenced by their network or by a broker who has that mindset. But in my experience, in the long run, most business owners end up preferring to rent rather than buy the commercial property on which they operate.
Yes, most real estate assets gain value over time. That said, it’s important to consider the downsides of owning your business space.
YOU NEED EXPERIENCE IN PROPERTY INVESTING
Many business owners who buy their commercial property are simply looking to eliminate their rent payment, thinking they will save money on a monthly basis. But some brokers can easily spot amateur investors. You may end up paying above-market rates for the assets—not to mention the upfront spending. It’s a fine line between wasting money and saving it.
YOU COULD END UP STUCK IN A BAD LOCATION
Say you buy a property and then you realize, a few months or even a few years later, that your company would do a lot better in a different location. You’d likely feel torn: You probably spent a significant amount of money to buy the property, which makes it hard to part with. You may have even spent so much that you don’t have the means to lease another property. That’s a hard situation to be trapped in.
YOU COULD OPEN YOURSELF UP TO LIABILITIES
If you decide to buy the commercial property, then unfortunately you may be liable in the event of an accident. Keep this in mind as you choose your insurance options—you want to be protected against any possible charges.
For these reasons, renting may end up being easier for you as a business owner. Many leaders find that they prefer to focus on the business itself and let a property manager worry about things like location and liabilities.
Even if we associate real estate properties with price appreciation, the possibility of property depreciation can’t be eliminated. When you buy a commercial property, you have to take into account the aging process of the building and the ups and downs of the market. Liquidity could be an issue while you’re playing the waiting game for property appreciation.
In a nutshell, unless you have experience investing in commercial property, you’re 100% confident in the value of your building’s location over the long-term, and you’re comfortable taking on some liability and risks, then leasing may be the right option for your company. With a lease, you have the flexibilty to move if you need to, you can take advantage of certain tax deductions, and you are free from the responsibilities that come with ownership at any level.
More time saved; more money to earn. That’s business.
Lane Kawaoka is a Podcaster for SimplePassiveCashflow.com & Real Estate Syndicator of 900M AUM (6,500+ rental units).