Buying Vs. Leasing Commercial Property

December 19, 2019

Deciding whether to rent or buy commercial property can play a big role in a business’s short- and long-term success. Considering the pros and cons of both approaches is a vital first step in the process.

Pros of Buying Commercial Property

  • Building Equity: Whether paid through loans or 100% upfront, owning property builds equity to help increases the value of a business.
  • Rental Income: Owners can benefit from a secondary income by renting out portions of the building.
  • Tax Breaks: Commercial property owners have the ability to deduct all nonmortgage-related expenses from tax payments. Interest and depreciation may also be deducted from the cost.

Cons of Buying Commercial Property

Two people going over documents at a table
  • Large Initial Costs: Between down payments, closing costs, and due diligence fees, it can be expensive to invest so heavily in commercial property.
  • Liable for Injuries: Owners are liable if someone is hurt on their property. In addition to typical commercial insurance, if owners rent out part of their property, they also need property manager liability insurance. They may also want to hire a property manager, which is an additional cost to consider.
  • Loss of Liquidity: Once invested, the money is tied up in the property, barring a sale or refinancing opportunity.

Pros of Leasing Commercial Property

  • Business Focus: When leasing commercial property, the renter’s sole focus is the success of the business rather than worrying about insurance, maintenance, and other issues.
  • Budgeting: Generally, a renter has a very accurate idea of costs incurred each month rather than the widely variable array of ownership costs.
  • Flexibility: Renters may have more location options when they’re looking to lease rather than to buy. When the lease is up, they don’t have to worry about selling the property and aren’t “locked” to the location.

Cons of Leasing Commercial Property

  • Rent: Monthly mortgage payments will generally cost less than rent.
  • Lack of Control: Between lease restrictions and rent hikes upon lease expiration, leasing property can result in the renter becoming stuck.
  • Lack of Equity: Unless renting to buy, the business owner would not benefit from capital appreciation (the increase of the property’s market price).

The decision to lease or buy is not an easy one. If you’re considering buying commercial property in the Nashville area, the agents at HND Realty LLC can guide you through the process. Our team has the experience and market knowledge to help with all aspects of commercial property ownership—from finding the perfect space to property management services. Call 615-297-7711 or contact us today.

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