Benefits Of Leasing
If your business requires flexibility to expand, or possibly move locations, leasing would be a good fit.
Leasing Benefits include:
- Flexibility to move locations
- Possible tax deductions, like property taxes
- Potentially lower upfront costs and liquidity than buying property
- Allows Tenant to invest solely in their business, instead of the facility
Leasing a property does come with upfront costs, like security deposits. These upfront costs will likely be lower than they would with buying property. This may allow your business more liquidity for things such equipment and vehicles. But keep in mind that though the costs might be lower in the beginning, leasing doesn’t have the same equity building and income earning potential as buying.
Remember that leasing costs are subject to change each year or whenever a lease is up. Due to increased operating expenses, even if a property is affordable now, if rent costs increase over time, it’s possible to get priced out of your property. If your business success is dependent on a stable location, make sure that you can still afford the property if rent increases later.
Benefits Of Owning
Businesses that want to stay in one location would lose out on building equity if they lease instead of buy.
The benefits of buying commercial real estate include:
- Build equity
- Stable rent costs each month
- Property value may increase over time
- Property could lead to additional income if you sublet unneeded space
- Potential tax deductions, like interest expenses
- Freedom over property decisions without landlord
Small business owners who buy instead of lease get added value from the property. Instead of just housing your business, your property can build equity over time. You may also be able to rent out part of the commercial space to bring in some extra money.
Owning commercial real estate can have other benefits as well. For example, if you own property that increases in value over time, you could sell it when you’re ready to retire and put the funds toward your retirement.
Buying property does come with some upfront costs, like a down payment and necessary appraisals. You will likely pay more in upfront costs when you buy compared to when you rent. However, buying property is an investment that may make you money in the long run. Any money spent toward rent doesn’t have the same value.
Terms To Learn
NNN – Triple Net, Popular in Industrial. Pay rent each month and tenant is responsible for taxes, insurance, common area maintenance or (OPEX).
CAM – Common Area Maintenance, are one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of a commercial property. A CAM charge is an additional rent, charged on top of base rent, and is mainly composed of maintenance fees for work performed on the common area of a property. An example would be mowing an operating detention pond. This is part of the Opex, your full operating expenses.
Opex – All operating expenses, including the common area maintenance (CAM).
Gross Lease – Pay per month, no taxes (one lump sum). This is a type of commercial lease where the tenant pays a flat rental amount, and the landlord pays for all operating expenses regularly incurred by the ownership, including taxes, electricity and water.
Design Build – Tenant owns the property and hires our team to build to their specifications, or has our team locate land to later develop for them. Another example of Design Build is if our team owns the land and then sells the land to the tenant, who then hires our team to design and build on the property.
Build to Suit – We own the land and retain ownership of the property. We build to the tenant’s needs on our property, which we can lease or sell to the tenant.