Should I Rent or Buy My Commercial Property?

This is a question that each business owner has to deal with. While finding a good location for your business might seem hard, today’s dynamic real estate market has made it even harder to decide on whether you should buy or rent your commercial property. You need to evaluate the pros and cons of each before concluding on which one you should go for.

Advantages of buying a commercial property

Besides the fact that your commercial property becomes part of your assets, buying a commercial property has the following benefits:

Higher chances of asset appreciation

Acquiring a business space in an upcoming area is beneficial as the property’s value is bound to appreciate as the area grows.

You could sublet extra space

Buying a spacious business premise gives you the chance of subletting the extra space thus increasing your revenue streams. If your business premise is located in a prime location and you have quality tenants, you could make quite a significant amount of extra money.

Provides a chance to build equity

Buying your commercial property gives you the opportunity of building equity rather than having to pay a landlord.

You have higher control of the property

When you own your business premise, you have higher control over what you can use it for. You make decisions on whether or when its maintenance is required and what improvements you need to make.

The major drawback of buying a commercial property is that you need a high upfront capital in its acquisition. For upcoming businesses, it could be wiser to invest this capital into its growth rather than tying it up in a property. In some instances, factors such as an increase in local tax and waning business conditions may cause the property’s value to decline, leading to a loss on your investment. Should you need to scale down or increase your operating space, it is much harder when you own the property than when you have rented it.

Advantages of renting your commercial property

Less upfront capital

Small start-ups do not have the ability to raise the capital necessary for buying a commercial property. For such, renting a commercial property is more viable. 

Higher flexibility

In most cases, commercial property contracts last between 3 to 10 years. Should the business need to grow or scale down, you can move to another location that fits your requirements once the lease lapses. Moreover, the number of properties for rent is often higher than that of commercial property for sale. Thus, you have a higher chance of finding a property for rent that’s fit for your needs.

Disadvantages of renting a commercial property

As you do not own the property, you have limited control. You will be susceptible to annual rent escalations and unsuitable revisions on the terms of your lease. In some instances, the rental fee could be higher than monthly loan repayments.

Should you be stranded about either renting or going for a commercial property for sale, feel free to engage us.

Haden Armstrong