Should You Buy Or Rent Property for Your Business

The decision to rent or buy property for your new commercial business is a difficult one, due to the number of factors that can affect which option is ideal for your particular business and financial circumstances. If you are trying to decide whether or no buy or rent space for your business venture, you will want to consider the following important benefits and downsides of renting vs. buying commercial space.

Benefits vs. Downsides Renting Property for Business

Renting or leasing your business space is a popular option for many business owners, but it does come with both benefits and downsides that may influence your ultimate decision.

The primary benefit of renting your business space is that it requires far less capital than buying property outright; you will not need to invest or risk significant early capital in order to enter into a rental contract, which will allow you to invest more capital into the business itself. In addition to this, if you are renting a space with multiple tenants, your overall rental and rental-related costs will be significantly lower than if you were to purchase the property outright. If you are a small business, new business, or you simply don’t want to risk too much capital, then renting is a great way to keep your costs as low as possible. Another important benefit of renting property for business is that most of the significant legal and safety obligations will be placed on the property owner rather than you as a tenant; for instance, the property owner will be responsible for ensuring the building is safe an properly maintained, and they will be responsible for issues such as repair as well.

However, renting a business space comes with downsides as well. The primary downside of renting your business space is that you have no control over your tenancy in the building beyond what the initial contract states; your rental contract will likely stipulate that the owner reserves the right not to renew your contract when your time is up, which could result in you having to completely move your business in a few years. This could not only be costly but could damage your customer base and presence in the nearby area, as businesses that move properties are at a higher risk for diminishing profits over time. Another downside is the inability to gain equity in the property, no matter how much the building, land or area appreciates over time. If you choose to rent, you will also find that you are missing out on the potential for secondary income by leasing out the building or parts of the building yourself to tenants.

Benefits vs. Downsides of Buying Property for Business

Buying your property space is not an uncommon option, although it is less common in small and new business owners in most areas. As with renting your home, outright buying your business space comes with both benefits and downsides that may influence your final decision.

One of the most significant benefits is the control you will have over your tenancy in the building; since you own the property, you will not have to worry about being kicked out at the end of your contract or meeting the terms and specifications as defined by a third party land lord. You will be able to move your business to a new property whenever you want--or stay in your owned property for as long as you wish. Another benefit to buying your own property is that you can lease the property to tenants in the future, which will result in a secondary revenue stream and thus an increase in your annual profits.

However, purchasing a business space does have its downsides. One of the most significant downsides to keep in mind is the serious risk caused by the need to invest much more capital into purchasing a space than you would by simply renting. When you purchase a business space, you will be tying up a lot of your capital into the purchase; so if for some reason you fall behind on your payments or your business isn’t as successful as you imagined, you would be engaging in some serious financial risk. And while it can be freeing to not be under the watchful thumb of a contract-happy landlord, purchasing the property outright means you will be responsible for serious obligations for the building and property; these obligations include regular maintenance, safety inspections, and ensuring that the building and premises all abide by state and federal codes and regulations. This can be a time-consuming and financially costly obligation in some cases, so that it something to keep in mind when making your decision.

Making Your Final Decision

The decision to purchase or rent your business space is not an easy one. However, you with the above benefits and downsides in mind, you will be better equipped to make an informed decision. You should ask yourself the following questions in your decision-making process:

l  Am I willing to invest some serious capital into purchasing a property vs. the lower capital costs of renting? Or would I prefer--or outright need to--save that capital for the business expenses?

l  Am I willing to take on the many obligations that a property owner has in keeping the premises safe and up to all legal standards? Or would I prefer that someone else handle that for me?

l  Would my business suffer if I had to move locations when the terms of my contract are up? Is it worth the additional investment to have peace of mind about my location for the foreseeable future?

With these questions--and your answers--in mind, you will be able to come to an informed decision about which option is best for your business.