Investing in Commercial Properties: Rent or Buy?
Businesses run on money, making a price point the single most significant decision-maker when it comes to buying or leasing a commercial building. While the financial health of a company is chief, a variety of accompanying factors also come into play. The following key points weigh heavily in a business’ choice to either lease or buy a commercial property.
Here are some questions to ask yourself before deciding to rent or buy a commercial property.
How long is the business expected to remain in a specific location?
When deliberating to buy or lease, business owners should consider the length of time the business will remain in that location. Buying the property is optimal when a business plans to stay put for seven years or more. Expecting to inhabit a space for less than seven years warrants leasing.
For example, a technology startup that expects to occupy a property for 15 years will pay 80 percent more to lease the building during that duration rather than buy. However, the same startup that plans to relocate in seven years will pay far less to lease during those few years.
What is the business’ growth potential?
Companies that are expected to experience rapid growth ideally will consider leasing a commercial property. The physical space required to accommodate growth will simply increase when businesses prosper, making a new building in the future foreseeable. In such cases, leasing is optimal.
Another benefit of leasing is the flexibility. Since lease terms usually fall between three and ten years, a company expecting to expand its size within this short span of time has no barriers when it comes to relocating to a larger, more suitable property.
On the other hand, businesses that have already seen explosive growth and experience stability in their market sphere will find security in an existing property, making buying a commercial space more practical. Buying commercial property is appealing, since mortgages are more stable than leases.
Can a business afford the upfront costs?
Leasing a commercial building requires hefty upfront costs, such as attorney fees, a substantial security deposit, and the pre-lease inspection. Upfront costs are high in comparison to buying a commercial space. In fact, these initial costs can total one-sixth of the costs of buying real estate.
Buying a commercial property has equally high upfront costs, including the down payment (up to 40 percent), closing costs, repairs, and appraisal fees. Many business owners do not have the significant capital required to cover these initial costs, which can be better applied toward reinvesting in their business.
How do business owners view building maintenance?
Leasing a commercial property comes with less maintenance headaches. The landlord manages all repairs, plumbing, and HVAC maintenance and any issues related to building upkeep. When leasing, business owners can focus on growing their business rather than be distracted by property problems.
The downside to leasing and avoiding maintenance responsibilities is that this perk comes with a monetary price. The rent will include the expenses related to repairs. The leasing manager includes these operating fees as outlined in the Common Area Maintenance expenses.
Buying a property means the owner is responsible for all repairs. Running a business leaves little time to handle maintenance, making hiring a property management company a necessity. Bringing on board a facilities services team is an added expense that digs deep into profits.
How critical to the business is rent control?
Along with the flexibility of renting comes the possibility of the landlord negotiating an increase in the monthly rent. When leasing, tenants are subject to the rent caprices of the landlord, forcing businesses that are unable to pay the rise in rent to either downsize or relocate.
Buying a commercial property offers price stability and control. Mortgage payments are fixed, and property owners have the benefit of growing equity in their building. In the long term, businesses have an opportunity to sell their property or refinance, bringing in substantial equity for the company.
Are renovations beneficial in the long run?
When a tenant makes improvements, like wall finishes or new carpeting, these enhancements directly benefit the landlord in the long run. As a tenant, the business owner temporarily benefits; but, when it is time to relocate, these improvements cannot be shifted to the new office space.
Renovations stay put when a business owns the property and do not have to be redone with every relocation. As an added benefit, any upgrades made to the commercial space only increases its value when it sells, dramatically spiking the financial returns on the sale of the property.
How important is the opportunity to rent out space?
Renting extra space to various tenants is a financial bonus of owning a building. With the extra monthly cash flow comes the burden of being responsible for managing tenants. Hiring a property management company is a solution, but it comes with a price tag that eats into rental income profits.
When deciding to rent or buy a commercial space, the factors that will influence your decision are many. Despite the dizzying array of buying versus renting pros and cons, one clear advantage to your bottom line is hiring Chicago Office Movers for your upcoming office relocation.
Work with Chicago Office Movers
Chicago Office Movers is a locally based company with a crew of trained, unionized and licensed movers. A reputable commercial mover, Chicago Office Movers are experienced in moving all types of office equipment, including heavy machinery, lab equipment, and the standard office furniture and computers. Included in its comprehensive services are office renovation and remodeling.
A feature that distinguishes Chicago Office Movers from its competitors is the company’s commitment to the environment. The movers utilize only recycled packaging and have made strides in reducing waste and energy consumption.
Whether your business is a small startup or a large corporation, Chicago Office Movers brings the right experience to fulfill your vision of successfully moving your company across the country or just down the street.
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Streamline your company move with Chicago Office Movers. A free estimate is available to jumpstart your relocation efforts. Give us a call at 312-244-2246 to get started!