TO LEASE OR BUY? MAKING THE BEST CHOICE FOR YOUR BUSINESS

Any prudent businessman must at some point determine whether leasing or buying his business premises is best. What are the advantages and disadvantages of each?

Buying clearly has its advantages. Leveraging your occupation cost to create personal wealth can greatly enhance your retirement plan. Remember that most retirement contributions are voluntary. No one misses his office mortgage payment. As the mortgage is paid down and the property appreciates, the owner is left with a sizeable retirement fund. The owner can withdraw equity, sell the property, or rent it to a tenant to create monthly income.

But owning commercial real estate can be a management intensive endeavor. Leasing allows you to focus all your energies on running your business. Ownership also ties up capital. What are the opportunity costs of such a large capital investment?

Before making any decision, consider the following:

LEASE ADVANTAGES:

Credit ratings are not quite as crucial compared to buying.

Don't need to worry about selling if moving to a new location.

Your monthly rent is a tax deduction as a business expense.

You have the freedom to sublet or move if need be at the expiration of the lease.

No loss if owning in a bad market.

LEASE DISADVANTAGES:

Rental rates with annual escalations based on market conditions.
Loss of the reversion or the value of the property at lease end.
No equity buildup.
Tenant may HAVE to move at the end of the lease.

BUYING ADVANTAGES:

Interest on the mortgage loan is tax deductible.
Changes can be made to the building to accommodate your business.
You can take annual depreciation deductions on taxes.
No rent increases.
You can benefit if you sell when the market is good.
If you end up with excess space, you can lease out the extra.
No set hours of business.
You can stay at that location as long as you wish.
Compelled retirement fund. No one misses his office mortgage payment.

BUYING DISADVANTAGES:

Usually requires a more initial capital to secure financing.
Property values may decline.
Owning real estate subjects the owner to various legal and regulatory risks not associated with leasing.
Requires owners to invest much time and energy in matters that are not its business, unless property is part of a unit owners association.
Inexperienced owners operate their real estate inefficiently and increase operating costs.

While the decision to buy or lease may seem difficult and overwhelming, there is help. The first step is to receive advice from an experienced commercial real estate professional who knows the business and the local market. Getting advice and assistance from a commercial real estate professional can significantly improve your chances of ending up in the perfect property at the right price. Founded in 1923, A.T. Pancrazi Real Estate Services, Inc. is the most trusted name in commercial real estate in the desert southwest. We have helped thousands of local business owners find the ideal properties in which to locate their business and offer leasing and management services as well.

Source: www.allbusiness.com