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Buying Or Renting Commercial Property

30 January 2018 No Comment

With many of the economies around the world still in flux because of the instability of the housing and banking markets, the dichotomy between buying and renting a piece of real estate is more relevant than ever. Although the pride of ownership will still drive many people to own, the individual economies of people and families may actually mean that certain individuals and heads of household would be better off renting for a time.

Below is the reasoning for buying and renting commercial properties.

Renting Advantages

1. Spending less money on maintenance
If you are enlisting a commercial property for business use, you may not want to deal with the everyday concerns of plumbing, heating, cooling and sanitation. Renting is a way to outsource all of these things that do not have anything to do with business, allowing you to focus on the actual running of your company.

2. Less responsibility for long term concerns
Suppose you have not solidified the final aspects of your business; you may be looking to grow after a few years and be in need of a different piece of real estate. Renting is a way for you to make a clean break after a certain period of time without having to go through the pain of reselling or leasing the property.

3. More reasonable financial structures
Renting a business location is usually much easier than buying it in terms of financial paperwork, especially if you are conducting business alongside a financial partner.

Renting Disadvantages

1. Inability to lock in longer term rates
If you have a stable business structure, you will need stable headquarters. By definition, renting involves a restructuring of the real estate contract every few business cycles, which can prove to be a hassle.

2. Less rights to perform business
When you rent a piece of real estate, you may have to deal with the zoning arrangements and the precedents that have been set by the owner of the property. You may not be able to perform certain types of business activities, and you will certainly not be able to customize the area to your specific needs.

3. Higher overall interest rates for occupational rights
In most cases, renting involves a higher interest premium than the purchase of the same property. Even if you are paying less every month, you are paying more overall because you’re paying for the mortgage of the owner, as well as any premium that he places on you for the privilege of controlling the physical property.

Buying Advantages

1. The freedom to perform business functions
Governmental agencies tend to give owners of property a much easier time when it comes to negotiating things like zoning rights and local fees. If you plan to stay in an area for a while, you will need this leverage to appease the powers that be to stay out of your life and let you conduct your operations.

2. The ability to customize the area
Making a purchase of a piece of business real estate will allow you the most ability to change that real estate to fit the specific needs of your business. You will not have to run every little change by the owner if you are the owner.

Buying Disadvantages

1. Dealing with zoning, local fees and regulations
Although you will have more leverage in dealing with local government, the fact is that you will still have to deal with them. This can take away a great deal of time from the business that you actually perform on a day-to-day basis. You may have to hire an administrator to keep the government off of your back, depending on the industry that your business is actually in.

2. Dealing with maintenance problems
When you make a purchase of a property, all of the various idiosyncrasies of that piece of real estate are yours as well. If the traffic shakes the foundation of the building or the plumbing is old and it leaks when the pipes expand in the summer months, you must expend your own money and energy to take care of this.

3. Longer term financial responsibilities
A mortgage naturally involves longer term contracts than a rental contract. First, you must be sure that you are definitely going into a situation that you will be staying in. Second, you must make sure that no matter what, you have that payment ready for the bank.

People who are in the market are encouraged to make their decision to buy or rent based on personal circumstance. Take stock of your personal economy and leave out the emotional criteria. No matter what is best for you now, your situation will most likely change in the near future and give you the opportunity to take advantage of situations, as long as you are in a position to do so based on sound monetary policy in the present.

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