The decision of whether to rent or buy property for your business can be a difficult one. A Cincinnati commercial real estate firm can help you make a decision. Making this decision is not necessarily a one-size-fits-all solution. What may work for someone else might not necessarily be the right fit for you and your business needs.
Financial considerations are often critical in determining whether renting versus buying will make more sense from a strictly financial point of view. This decision can be complicated by factors such as the time frame for disposition of your current office, whether there is a need to relocate during the term of your lease or purchase agreement, and anticipated growth.
It’s important to weigh the pros and cons of renting versus buying for your business. Below is a list of the pros and cons for each.
Pros Of Renting Real Estate For Your Business
- Renting permits you the flexibility to relocate if necessary without having to worry about selling your property.
- You can generally find a better deal than buying–particularly in big cities where homes are sold at higher prices.
- Some owners will let you customize the space before signing a lease agreement so that it meets your business needs.
- You can often rent a space on a month-to-month basis, with no long-term obligations, and without the risks that come with buying land for your business.
Cons Of Renting Real Estate For Your Business
- Even though you have flexibility when renting, many leases will require minimum terms–meaning you are locked into that land for your business location.
- You have to pay a security deposit, which is typically equal to the first month’s rent and can be anywhere from one month’s worth of rent up to three or even four months’ worth of rent.
- Renters rarely get tax benefits like depreciation–which could significantly affect your business’s bottom line.
Pros Of Buying Real Estate For Your Business
- Buying permits you to build equity in an appreciating asset over time–rather than just renting at will with no underlying value.
- You can deduct the interest on loans used for purchase purposes from income taxes if they are used for buying properties.
- Property taxes are generally lower than those of rental Real estate, which can save you money in the long run.
- Capital appreciation allows your property to increase in value over time, which is an important consideration if you’re looking to stay in an area for a long period of time.
- There is also a potential for rental income if you rent out your building.
Cons Of Buying Real Estate For Your Business
- You will have to make large upfront payments–which may be difficult if your business is not currently profitable or if you are short on cash.
- Even the best of investments can lose value. Your properties are not immune to depreciation which essentially means that if your home is worth less than what you paid for it–you might have some trouble selling or borrowing against it (unless there are clauses in place).
- Businesses have had difficulty renting out their commercial properties because Real Estate values have increased.
- You have to plan ahead so that you don’t make your monthly payments too high–which could result in financial instability if businesses require a large down payment which can be around 20%.
- Qualifying for financing can be difficult for Real Estate transactions. The best loans typically have an interest rate of 4% but some loans can have an interest rate of 10%–which can be difficult for a business.
What Is Right For Your Business?
Renting is the perfect way to keep costs low while still having options over where you have a business location. It allows flexibility when it comes to moving locations, which can be helpful if the area in which you are currently operating changes or there is some other issue with that location.
Renting also typically doesn’t require as much up-front financing as owning property does because all payments go towards rent instead of an entire house purchase price; this makes it easier for those who don’t qualify for traditional loans or mortgages due to insufficient credit score, debt load, etc. but do have funds available now. You may even qualify for a lease-to-own option, which allows you to buy more property over time.
Some people may not like the idea of paying rent every month and then having to find another location when they are done with their current rental term; this can be an inconvenience for those who want more security in knowing where their business is located all times. There is also the potential risk that your landlord could sell or relocate his own possessions before your contract expires so if you’re looking for stability renting might not be right for you.
Buying with the help of a Cincinnati commercial real estate firm is the perfect long-term investment for those looking to build equity and enjoy property appreciation. Buying a home also has less risk of depreciation because monthly payments go towards paying off your mortgage, not just rent–which can help you create an appreciating asset over time!
Buying property does require large upfront payments that may be difficult if your business is not currently profitable or if you are short on cash. You will need good credit and enough funds available now for the down payment, so this option might not work well for people who don’t meet these requirements but still want security for their business location.