Estimated reading time: 5 minutes
When you first opened your business, you probably selected a location based on your budget and the size of your company. However, if your business has grown, you may realize that your current space is no longer adequate due to limited square footage. You might also be considering moving to a more suitable location that provides easier access for your customers, increased foot traffic, or improved logistics.
In either case, moving to a new location is one of the most important business decisions you will make. You will also need to choose between leasing and buying the business space. The best choice will depend on your company’s financial situation and long-term plans. This Ameris Bank Equipment Finance blog article discusses leasing versus buying business space, emphasizing the benefits of both alternatives.
Benefits of leasing business space.
Leasing office space, retail storefronts, and industrial facilities has become a common practice for businesses operating in countless industries nationwide. Leasing enables companies to establish a physical presence with lower upfront costs than buying a space outright. This frees up capital for other business needs, such as equipment, payroll, and inventory. Here are some additional benefits of leasing business space.
Various lease options
A commercial property owner can offer various lease types for tenants to choose from. These may include a full-service lease (also known as a gross lease), a net lease, a triple-net (NNN) lease, a single net (N) lease, a modified gross lease, and a percentage lease. Each lease type has its own characteristics, so it’s important to research the available options to understand how they function.
Predictable payments
The monthly lease payments are typically fixed and remain unchanged throughout the lease term. Having predictable monthly payments is beneficial because it helps you plan your company’s financial obligations. This stability helps reduce unexpected financial stress and enables better cash flow management.
Less maintenance responsibility
Speaking of financial obligations, some lease agreements state that the commercial property owner or landlord is responsible for most property expenses, including maintenance and repairs. If your lease agreement includes this provision, you can save money since you won’t have to cover these costs.
Easier, less challenging relocation
You can move your business to a new location when your lease ends. This allows you the opportunity to explore options that might better suit your operational needs, target market, or overall growth strategy.
Benefits of buying business space.
Many companies across various sectors have built up enough capital to purchase their place of business, whether it’s an office building, retail shop, or industrial facility such as a warehouse. Buying a business space is undoubtedly a huge financial commitment that requires a sound strategic business plan and sufficient funding. That said, it presents business owners with these key benefits.
Greater control
When you buy a space for your business, you can make structural and design changes according to your preferences, operational needs, and brand guidelines. This could involve rearranging the interior layout, painting the walls, installing new flooring, and updating the exterior facade. Keep in mind that some changes—such as moving walls or altering plumbing—will need city permits and approval. It’s advisable to consult with your contractor, who can manage the permitting process and ensure that all documentation is submitted correctly.
Builds equity
Owning your business space is a great way to build equity, which can enhance your financial security over time. When you make monthly loan payments, you are investing in an asset that will eventually belong to you. Moreover, if your property value increases, it becomes a valuable asset that contributes to your net worth. Should you choose to sell the space in the future, you could potentially receive a good return on your investment.
Stable costs
If you secure a fixed-rate commercial loan to buy a business space, your monthly payments will stay the same throughout the entire loan term. This can simplify budgeting for expenses. If you opt for a commercial loan with an adjustable rate, your payments will be fixed for a specified period, such as 3, 5, or 7 years. However, keep in mind that once this introductory phase ends, your payments will adjust based on the market index.
Investment potential
If your business has extra space—such as unused offices—and you don’t plan to use it, leasing it out could be a viable way to generate additional income. Before proceeding, research local market rates for leasing and identify potential tenants who fit well with your business environment. Additionally, collaborate with a commercial real estate broker to ensure that your lease agreement is clearly defined.
Tax advantages of leasing and buying a business space.
When deciding between leasing and purchasing a business space, consider the potential tax advantages of each option. For example, monthly lease payments are often tax-deductible as a business expense. On the other hand, owning a business property can provide tax benefits, such as mortgage interest and depreciation deductions. It is advisable to consult a tax professional to understand the specific tax advantages available for your business.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank does not endorse nor is affiliated with the companies listed in this article.