Location and operation on commercial sites are decisive factors for running a company. Whether you run an office, clinic, factory, or retail store, you need to decide whether to buy or rent.
Leasing a property sometimes has a negative connotation with entrepreneurs. They can be influenced by their network or by a broker who has this mindset. But in my experience, in the long run, most entrepreneurs prefer to rent the commercial property they operate on rather than buy it.
Yes, most property values increase in value over time. However, it is important to consider the disadvantages of owning your business space.
YOU NEED EXPERIENCE IN REAL ESTATE INVESTING
Many business owners buying their commercial property just want to cancel their rent thinking they can save money on a monthly basis. But some brokers can easily spot amateur investors. In the end, you may end up paying above market prices for the assets – not to mention the upfront expenses. There is a fine line between wasting money and saving.
YOU MIGHT BE IN A BAD LOCATION
For example, suppose you buy a property and then find out a few months or even a few years later that your business would do much better in a different location. You’d likely feel torn: you likely spent a lot of money buying the property, making it difficult to part with. You may even have spent so much that you don’t have the funds to lease another property. This is a difficult situation to be trapped in.
YOU COULD OPEN TO LIABILITIES
If you decide to buy the commercial property, you can unfortunately be held liable in the event of an accident. Keep this in mind when choosing your insurance options – you want to be protected from potential charges.
For these reasons, renting can become easier for you as a business owner. Many executives find they prefer to focus on the business itself and let a property manager take care of things like location and liabilities.
DEPRECIATION OF CAPITAL
Even if we associate real estate with increases in value, the possibility of a decrease in value cannot be ruled out. When buying a commercial property, you need to consider the aging process of the building and the ebb and flow of the market. Liquidity could be an issue while you play the waiting game for real estate appreciation.
In short, if you have no experience investing in commercial real estate, are 100% confident in the value of the location of your building in the long run, and are happy to take on some liabilities and risks, then leasing may be the right option for your business. A lease gives you the flexibility to move if necessary, you can enjoy certain tax deductions, and you are free from the obligations of ownership at any level.
More time saved; to make more money. This is business.
Lane Kawaoka is a podcaster for SimplePassiveCashflow.com & Real Estate Syndicator with AUM 900 million (6,500+ rental units).