Owner-Occupied Real Estate: Pros and Cons of Buying vs. Leasing
Should you buy or lease commercial property? Learn about the pros and cons of buying vs. leasing real estate for your business.
Are you searching for the ideal commercial building in the right location for your business? Perhaps you’re seeking additional space or amenities for your storefront, factory, office space or storage needs. Before making a decision to expand or relocate your shop, it pays to research the pros and cons of buying vs. leasing commercial property.
Buying Commercial Property
If you plan to stay in your building for the long term and have cash available for a down payment, buying may be an option worth considering.
Advantages of buying:
• Opportunity to build equity. As you make payments on your commercial property, you build equity that may be tapped in the future.
• Asset appreciation. Commercial property is an asset that may increase in value over time. There’s potential to make a profit if you sell the property later on.
• Predictable payments. Add stability and eliminate the risk of extreme rent increases when you buy your company’s building.
• Potential for rental income. You could rent out extra space in the building for a passive income stream.
Drawbacks of buying:
• Large upfront investment. You need available cash for a sizable down payment on a commercial real estate loan.
• Higher upkeep and insurance costs. If you own the building, you’re on the hook for property taxes, insurance, maintenance and repairs.
• Less flexibility. Making a commitment to buy a property ties you down to a specific building and location.
• Loss of liquidity. Investing capital into your building could take away from your ability to invest in other business initiatives.
Leasing Commercial Property
If your business is going through rapid change or expansion, you may prefer the flexibility that comes with a lease.
Advantages of leasing:
• Lower upfront investment. The upfront costs of leasing are significantly less compared to buying.
• Access to competitive properties. In some situations, leasing may be the only way to get the property you want in a hot real estate market.
• Greater flexibility. When your lease is up, you have the flexibility to renew your lease or shop around for a different location.
Drawbacks of leasing:
• Unpredictable rent increases. When your lease is up, you could face steep increases in rent.
• No equity benefits. Your monthly rental payments don’t help you build equity or ownership in the building (unless it’s a lease-to-buy agreement). Likewise, you don’t stand to benefit from the appreciation in value of a building that you’re leasing.
• Less control. When you’re leasing, you have less control over the rental space and may be limited in your ability to make changes.
Explore Your Options
Amegy Bank is here to help you invest in and grow your business . If you’re ready to buy commercial property for your business, we can help you make it happen. Contact a business banker at Amegy Bank to learn more about commercial real estate loans1.
The information provided is presented for general informational purposes only and does not constitute tax, legal, or business advice. Any views expressed in this article may not necessarily be those of Amegy Bank. Amegy Bank is a division of Zions Bancorporation, N.A. Member FDIC.
( 1 ) Loans are subject to credit approval. Terms, conditions and restrictions apply. See a banker for details.