Your lease is expiring. You have outgrown your current facility. Your building needs are very specific, and you are tired of paying rent. What do all of these scenarios have in common? Right, it's time to start looking for a new building for your business.
Maybe you will find an existing building that fits your needs perfectly and offers an affordable, long-term lease to protect your commitment. Maybe you won't. Maybe it's time to buy an existing building and renovate it, or perhaps you should build your own building and stop paying for something that doesn't completely fulfill your business needs.
In most cities, finding an existing, affordable building to lease is becoming increasingly difficult, and what is vacant is going for a premium price. In response, many business owners are considering building a new facility or buying and renovating an existing facility.
If you are debating buying vs. leasing, here are some points to consider:
Flexibility Will your business continue to thrive and, someday, maybe need to expand? And if so, what are your options if you own the building: renovate or rebuild? Does the building have broad market appeal for resale purposes?
Investment Do you consider real estate a good investment at this time, or would the investment be of better use put back into the business?
Control Does your lease offer the control over neighbors, parking, and maintenance that you desire?
Needs Is the building right for your needs? What about the needs of future tenants? Will it require major reconstruction to sell it later? Does the lease agreement meet your needs?
Alternatives What else is available in your price range? Small business owners cite the lack of a down payment as the most common reason for leasing and not owning. However, loans guaranteed by the U.S. Small Business Administration (SBA) and offered by lenders such as Wachovia Small Business Capital can provide up to 90 percent financing for qualified borrowers, making ownership a reality for many small business owners.
If you do choose to buy, here are some of the advantages you'll enjoy:
Appreciation Every dollar your building appreciates and every dollar applied toward the mortgage principal translates into a dollar of equity.
Tax Advantages Mortgage interest and depreciation on commercial buildings presently are fully deductible for both state and federal purposes. Moreover, costs associated with the loan may be deductible.
No Rent Increases You'll have no landlord and are not subject to escalating rents.
Savings With the inherent savings of ownership, you'll be able to devote more working capital to increasing sales and profits. In fact, monthly mortgage payments are often less than previous rent payments.
Business owners who are weighing the options of buying vs. leasing should consult with an accountant to more accurately ascertain the specific advantages for their unique situation. More often than not, business owners find that buying their building is one of the best investments they can make for their business.