The Advantages of Owning Your Own Commercial Real Estate
Is it better to own your own business property than to simply lease it?
In Part 1 of this series we highlighted how some of the world’s most well-known personalities and companies heavily invest in commercial real estate. Yet, leasing is often the default choice of many businesses both new and well established. So is it time to own your own business property? What are the advantages?
Controlling Your Costs
Leasing can be dangerous for businesses. That’s true whether you have an industrial warehouse, retail store, or office. As a renter you are always at the mercy of the property owner and management company. What is they decide to hike the rents beyond what you can afford? What if they flat out choose not to renew your lease?
You might have spent a substantial amount of capital on that property, marketing, and other related operations. You’ve built a presence and client base. Employees have probably relocated to be close to your premises. If you don’t own you don’t know how long you’ll be able to stay there.
Commercial real estate investment can provide great tax breaks. Depending on your ownership structure this may either help improve your business cash flow and books, or savings could be passed through to offset other personal income and tax liabilities.
Business Value and Performance
One of the most powerful benefits of owning your own business property is the additional value and income it can provide to your organization.
Your business property’s value and equity can rise independently of your other lines of business. Some have, and will find that their commercial real estate assets outperform and are worth more than the rest of their business. This equity may also be tapped for use as working capital, and it is typically easier to raise funding, obtain loans and better loan terms, and sell a business with real estate assets.
In the case of multi-tenant properties you can reap income and cash flow from other tenants. This can support your business when sales or profit margins are soft. It may even cover your own commercial real estate costs.
The Cons of Owning Your Business Property
With all the benefits why don’t all businesses own their own premises? It can require an upfront investment. Some may not have that financial flexibility. It can bring more responsibility and distraction. When it comes time to move you’ll also need to lease or sell that property rather than just packing up and leaving.
Still overall the pros do seem to outweigh the cons for most businesses. If you can afford it, and more can with today’s low interest rates, it’s worth exploring your purchase options.