For small businesses, there will come a time when purchasing a property will make more sense than continuing to pay rent. The timing of this new investment will be different for each business, but there are benefits associated with owning commercial real estate.
1. You Could Save Money
If your location is good for your business, there’s no reason to leave. If you stay in the same location for 15 years, but you lease that property, you’ll be ending up paying as much as 87% more in leasing than you would owning that property. Analysts have figured the break-even point of renting versus leasing to be at 7 years, so if your plan is only short-term, you may need to weigh additional benefits of leasing over owning.
2. You Build Equity
Once you’ve put money down on commercial real estate, you’ve already begun the process of building equity. Every loan payment you make will add to building that equity. Equity gives you leverage. You can refinance if you need a loan against your equity, or if you later sell, your proceeds could help you get into a better property. When you lease, you don’t build equity and you don’t have the leverage to increase your availability to funds.
3. It’s Your Property
If it’s your property, that means you don’t have a landlord restricting what you can and can’t do with it. Also, a fixed-rate mortgage ensures your payments always stay the same. When you lease, the landlord can increase your lease every year.
4. Asset Appreciation
While you own your property, it should increase in value if properly maintained. When you do sell it, you should see capital gains equivalent to the difference in the purchase price and its current value.
Your interest and depreciation on your commercial property are tax deductions. While they’ll be lower than leasing, since you can’t deduct the principle, it’s still a benefit when you compare the long term benefits of owning over leasing.
6. Lease Part of Your Property
If you purchase a property large enough for your operations and still have extra space, you can always lease the part you don’t utilize. You can choose to manage the responsibility of being a landlord yourself, or you can enlist the services of a property management firm. Whichever you choose, the income generated from your commercial real estate will help lower your mortgage payments.