Commercial Real Estate Prices

Small Business Owners; Should You Lease or Rent?

Posted on Friday, April 23, 2010

Either way nows a great time. There's plenty of selection and the price is right. Lenders are also tripping over themselves to find deals that can get approved by their underwriters and owner-occupied CRE is at the top of the list. If you own your own business and want to buy an owner - occupied property, there are pros and cons;

Here are some of the pros;

You get to deduct all those landlord costs from your income taxes; insurance, real estate taxes, mortgage interest, repairs and maintenance. And there's deprecation on top of that!

CRE can be a great investment. You can build equity (as opposed to only paying rent), which many small business owners sometimes borrow against for their business needs, and eventually own your CRE free and clear. Later on when you decide to retire, you can sell or rent your CRE to suppliment your retirement income.

If you buy a multi unit CRE, tenants can help cover some or all of your overhead.

Owning your own CRE give you control over costs; no landlord to raise your rent, pass on costs of expensive improvements that extend beyond your lease term, etc.

It also give you control over your property; to choose other tenants, use the space and put up whatever signs the zoning allows and there's no risk of a landlord asking you to leave

On the other hand, some of the cons include;

The property value or neighborhood can go down, you may make a bad investment.

You'll have less flexibility. If your business grows or shrinks, the area changes, a better location emerges, or competitors move in, you may be stuck in your location.

And being landlord is work.

On the subject of renting, pros include some of the good deals you can get now. Almost 100% of new office buildings are offerring soem sort of free rent.

As a tenant you'll have a lot mroe flexibility. You can move if you need to. You 'll have no ties.

And of course you'll have no ownership responsibilities.

Finally, if you're a good saver, you can invest the downpayment someplace else.

On the cons side for leasing, tenants don't build equity, have no tax benefits, have no control over the property, and is at risks, including a common risk now in cases where a landlord goes into foreclosure.

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