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Leasing vs. buying commercial property. Which is the best option?

On Behalf of | Jul 22, 2022 | Commercial Leases

Sooner or later, growing businesses and companies either need to open additional locations or move into a larger space. Sometimes, they may even need to do both simultaneously.

If you have only operated in one location, you must decide whether to lease or purchase your new property. Since both options present advantages and drawbacks, weighing their pros and cons may help you decide.

Purchasing commercial property

A top benefit of buying space over leasing it centers on its potential for future value. When well-maintained, most commercial properties appreciate, becoming more valuable over time. Among the other benefits of buying a property are:

  • Possible tax breaks
  • Control over the property
  • Income increases from renting out space

There are downsides to buying. For example:

  • Financing difficulty
  • Large down payment
  • Requires liability insurance

You also risk facing prepayment penalties if you want to pay your business debt off early.

Leasing commercial property

Many companies prefer commercial leases for their property needs. One reason for this is that it requires fewer upfront costs since you don’t have to make a down payment.

Here are some other advantages of commercial leases:

  • Freedom to exit lease and property
  • Expenses are relatively fixed
  • Possible tax breaks

The potential disadvantages of leasing space include the following:

  • No rewards for property appreciation
  • No control over the property
  • No extra rental income

Further, you can expect expensive monthly rent payments and associated costs that could exceed the expenses required when purchasing.

Before you decide, it’s wise to learn more about California commercial real estate leases and transactions. Taking this proactive step can help you avoid many legal hurdles that could delay or change your plans.