Lease or Buy Commercial Property? What to Consider

What to consider when deciding whether to rent or purchase commercial real estate in Australia.

Finding a suitable location from which to operate is of paramount importance to new business owners and established veterans alike. Deciding if renting or purchasing is the right move takes careful consideration and planning, and making the wrong choice can have ramifications down the line.

The Costs of Buying and Renting a Commercial Space

When purchasing a commercial property the initial outlay will be much higher in comparison with entering into a lease agreement. Unlike rental payments which can increase over time, having a fixed mortgage rate over the life of a policy can provide structure in terms of fixed costs. As a commercial property owner, tax deductions can be made on all costs associated with the running of the business: This includes interest on the mortgage and any property taxes. Although tax offsets are always welcome, there are negatives associated with buying as opposed to renting commercial property. The initial outlay used to purchase can be put to good use if deciding to rent, allowing the business to respond quickly to market conditions and potentially getting a leg up on the competition.

The Risks of Renting and Buying Commercial Real Estate

Leasing commercial property is generally not as long term as purchasing, so it’s possible to test the waters regarding a location. Should an area depreciate in value, the responsibility to acquire new tenants or sell the property is firmly out of a renter’s hands.

Just as a tenant can respond to market conditions and leave the premises, a landlord can also reassess the value of their commercial investment. Should the desirability of an area increase, rental payments can go up. In contrast an investor is unlikely to decrease the rent, but may try to sell should an area become unprofitable.

Should there be an opportunity to buy below-market value, it may be worth purchasing commercial real estate. This is especially true if the financial resources are available without hindering business growth, and you intend to use the premises for the next ten or so years. In addition, if the premises needs to be changed to accommodate machinery or specialized processes, it may be wise to own the premises so any changes to the property cannot be sold on as ‘fit for purpose’ by the owner.

Seek advice about Buying or Renting Commercial Real Estate

Deciding whether to lease or buy is not one that should be taken lightly; so carefully consider your financial situation, and personal requirements. It’s also wise to seek advice from a financial planner or accountant who can help to assess and guide the business. Real estate listing sites can help locate commercial property to rent and buy. Try in Australia or RightMove in the UK. Before taking the plunge and signing a lease or purchase contract, gather as much information as possible to ensure you make the right decision for you and your business.

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