Commercial Real Estate: Is it Better to Buy or Lease?
Is it smarter to buy or lease your commercial real estate?
When it comes to residential real estate and your own home most individuals would definitely say owning is way better than renting. What about business property? Why are some very notable corporations and business leaders so hot on making real estate investments while others lease?
Clearly companies like Wendy’s, Starbucks, Walgreens, Amazon, and Google could afford to own their own real estate. Yet, they rent instead. Often they rent in the most prime and expensive locations. Then there is Warren Buffett, Mark Zuckerberg, Facebook, and Donald Trump who are all about owning. At the same time you have the likes of Sears shedding real estate holdings, and Warren Buffett picking it up with his own personal cash.
Why do such giants stick to leasing? Are you and your organization missing out by being tenants instead of owning your own building?
On the surface it can appear quite confusing. Who has it right? What’s right for you?
The truth is that there can be pros and cons of both strategies for businesses. Let’s take a glance at a few of them.
The Pros of Owning Commercial Real Estate include:
- Tax breaks
- Better control over your overhead
- The ability to grow business value separately from your main line of work
- Potential to offset your real estate costs with other tenants’ income
The Pros of Leasing Commercial Real Estate include:
- Less working capital tied up in other assets
- More perceived flexibility in moving and scaling operations
- Lower liability
- Staying focused on your main line of business
In addition to these factors experts would argue that the choice is also dependent on timing, location, and the stage of business. For example; what is the forecast for your industry over the next few years? How is the real estate market in your area? What plans do you have for growing or moving your business in the future? What is the highest and best use of capital or access to credit for your organization?
Coming up in this series we’ll dig deeper into the pros and cons of both owning and leasing, how to maximize the upside potential and minimize the risks, and what may be the best moves for you as a business owner or commercial real estate investor in Florida as we move into 2017.