Should you own commercial space or lease it?
Should you own a property or lease it? To buy or lease is one of the hardest decisions you may take as a business owner, entrepreneur, tenant or even a resident.
To answer this question or to help you make the decision you should know first the pros and cons and the financial aspects of each decision!
Buying a commercial property: Pros and Cons
Buying a commercial real estate property automatically makes you the owner of the property whether you pay cash upfront or have installments or buy it with a loan.
The pros of buying a commercial property
The equity of the building grows over time
As we mentioned above, when you buy the property and pay cash for it, you own 100% of it. Your down payment and regular payments develop equity, if you take out a loan. If you sell the property your equity will become the difference between the fair market value and the remaining loan.
Property management
One of the most important reasons for buying is the control over the property, which means you don't have to argue with a landlord if you want to rearrange the area, or even do anything on the property in general.
The cons of buying
Upfront paying
When you buy instead of lease, you will often have to pay a down payment of 10% to 40% of the property's worth, as well as closing costs, origination, and appraisal fees; you'll likely pay up to six times as much money upfront.
Lack of flexibility
If your company outgrows the current location, you may be obliged to lease or buy a new location.
While a lease carries the same risk, it offers more flexibility in that you can easily re-evaluate your property need sat the end of your lease period or even in the middle of your contract and locate a different solution that better meets your new demands.
Liquidity or capital loss
There is always the possibility that the value of your property could drop, and if you decide to sell, you may face a capital loss, which is a disadvantage. You may also have liquidity concerns as a result of your money being invested in the property. Furthermore, if you had leased instead of buying, the money invested in the property may have been put to better use.
Qualifying for financing difficulty
If you or your company cannot get accepted for bank financing, you may have a difficult time qualifying for a commercial building loan with a reasonable interest rate.
Having your own property is a good choice; indeed, however, you will still be subject to escalating tax rates as part of your building expenses!
The pros and cons of leasing a commercial property
Depending on your company's demands, leasing rather than buying may be a better option. During the lease, you are free to utilize the property, subject to any restrictions outlined in the lease agreement.
When leasing, there are numerous factors to consider.
The pros of leasing
Increased Liquidity
You'll need significantly less money upfront for a lease. A security deposit, pre-lease inspection, attorney fees, and maybe a broker's charge will all require funds. These combined expenditures are much lower than the amount required for buying, implying that you will useless of your liquid resources to acquire the property.
Leasing a property allows you to put money into your business or expand your space instead of spending it on a property that you would have purchased.
Check out this list of the best business park projects.
Property management by the landlord
When you rent a space, the landlord is usually in charge of common area maintenance, such as building repairs, HVAC and plumbing maintenance, and so on. On a day-to-day basis, the landlord often employs professional property management that will handle everything from tenant complaints to property-wide difficulties.
As this point was mentioned before on the pros of buying, it’s also mentioned here because some people prefer todo the property management themselves and others prefer when someone else does it for them!
Easily living in an existing development
If you want to move into a building that is already part of a development, it will probably be easier to lease one of the buildings from the property management company rather than try to buy it. It's possible that buying the building isn't even an option. A lease can help you get your company into a great location that might otherwise be out of reach because a building isn't for sale.
The cons of leasing a space
Variability in costs upon renewal
The most significant risk of leasing a property is the potential for a landlord to request a rent increase when the lease is up for renewal.
This might cause a lot of problems for your business because it forces you to renew your lease at a higher rate, which may compel you to relocate or shrink if you don't want to pay the increased cost.
Lack of potential investments
You won't benefit from the building's price appreciation if it sells because you don't own it. You won't be able to generate equity in the property, which limits your earning potential as compared to a property you own. You will also be unable to make rental money.
Learn more about what’s ahead for commercial real estate in 2022? To have a more inclusive look at the real estate market!
Interested in exploring Business Parks in New Cairo? Here's everything you need to know about Cairo Festival City Business Park.
So, should you own or lease?
For most business owners, deciding whether to lease or buy office space is not simple as we mentioned above.
A combination of financial, tax, and company-specific variables will influence your selection.
If your company is stable, with no or little plans for expansion, and you have a lot of cash on your hand, buying your property can be a good idea. Leasing space, on the other hand, is likely to be the best option for your company if it is fast-growing and likes to reinvest cash in business expansion or development.
You may still be confused about whether to own or lease, we at Tayf can help you make the decision! You can come to us for consulting, and we will give you the right answer based on our research, your needs and budget!
If your decision falls upon leasing, we can offer you retail and administrative spaces at LIivia, Mivida Business Park inNew Cairo!
However, we usually recommend leasing to people due to its perks, but you can always contact us, and we will see what best suits you and help you implement it!
References:
https://www.forbes.com/sites/forbesbusinesscouncil/2021/04/14/is-it-better-to-lease-or-own-commercial-property-how-entrepreneurs-can-decide/?sh=1f34fee4310e
https://www.forbes.com/sites/billconerly/2013/07/02/commercial-property-values-with-rising-interest-rates/?sh=4fa362af745c
https://www.forbes.com/advisor/in/investing/commercial-vs-residential-real-estate-investing/
https://aquilacommercial.com/learning-center/buying-vs-leasing-a-commercial-property-pros-cons/
https://www.bdc.ca/en/articles-tools/money-finance/buy-lease-commercial-real-estate/buy-or-lease-my-commercial-space
https://invest-gate.me/features/7-essentials-to-consider-before-buying-a-commercial-property/
