Not sure which is the best route? Here are our quick tips to buying vs. leasing real estate.
In need of commercial real estate? If so, then you may be wondering whether buying or leasing is the right option for you. While there is no universal answer, there are some potential pros and cons of commercial real estate lease vs buy that you should carefully consider in order to come to an educated decision.
This, along with a little help in the form of a commercial real estate investment analysis from our experienced team, can give you greater confidence in your ultimate choice.
Buying Commercial Real Estate
There are many potential advantages to buying commercial real estate outright, starting with the fact that doing so allows you to build equity and take advantage of asset appreciation over time. Some other possible benefits of owning commercial real estate include:
- Tax breaks in the form of depreciation deductions, where applicable.
- Having direct control over the property.
- Being able to rent or lease out all/a portion of the property for additional income.
Of course, owning commercial real estate can also come with its disadvantages, such as:
- Additional costs involved with maintaining the property and keeping it up to code.
- Having to seek out financing for the purchase of the property.
- Potentially being stuck with the property long-term, depending on the market.
Generally, purchasing real estate tends to be the better decision for those who are looking for a long-term commitment to a space. Furthermore, because many commercial property loans require a down payment of at least 20%, this also tends to be the better option for those who have the funds available to place a large down payment.
Leasing Commercial Real Estate
When you lease commercial real estate, you are typically “locked in” to a rental contract on the space for a pre-determined period. Some of the benefits that can come along with a commercial lease include:
- Lower overall out-of-pocket costs, which frees up more capital for other needs.
- No need for financing or a significant down payment (though deposits may be required).
- Flexibility in being able to renew one’s lease or terminate it at the end of the contracted agreement.
- Property management generally included in lease price.
On the other hand, there are some potential drawbacks of commercial real estate leasing to keep in mind as well, such as:
- Lack of control over other tenants sharing the space.
- No equity built and no appreciation to take advantage of.
- Possible fines and penalties for breaking the terms of a lease.
In most cases, leasing tends to be the better option for start-up businesses that have limited capital but need a space out of which to operate.
In a commercial real estate “lease vs. buy” situation, you need to know all of the facts. If you are thinking about purchasing a commercial property in Arkansas, be sure to contact our team at Ferstl Valuation Services by calling (501)-313-0641 to schedule a commercial real estate investment analysis before you commit to anything. We are here to help you make the right decision!