Brenner: Blog

Renting vs. Owning: What’s the best option for you?

Added 9/29/16 by The Brenner Blog Team

Have you ever thought about owning your own commercial building? Maybe you’ve been renting for years, moving your business from site to site based on the best lease deals.

Renting has its perks, but ownership is worth considering too. There are numerous calculators out there on the web (some which will cost you), that help you look at the numbers, as well as an abundance of articles to get you thinking, but today we’ve brought you a few Brenner-ized “pros and cons” on making this decision about your office or industrial space.

Ownership – Do you want to be in the Real Estate Business?

Let’s face it – when you own, whether you are an owner/user or an investor, you become or act as a landlord. And owning a property is like having a baby…you are not prepared for the unexpected. Are you going to purchase a building that your company will fill? What if the property you find is multi-tenant, requiring you to hire a management company to collect rent and all the details that go with ownership?

Decide if you have time or desire to be in the real estate business. Whatever your business is, adding real estate ownership to your responsibilities is no light matter…time-wise or financially.

Pros of Ownership

If entering the real estate business is something that appeals to you – it does offer the advantage of having direct control of what happens to the property. And of course, ownership offers the tax shelter advantages of interest and depreciation deductions, as well as equity in the building.

Cons of Ownership

  • Are you financially ready? One of the “cons” of owning your own building is cash flow, plain and simple. It costs less up front to lease than to own, so if you are not in a position to make the purchase, ownership may not be an option. The money that you need for a purchase could remove capital that you need to run the business.
  • Are you likely to want to move your business? With ownership, you’ll have the added burden of either subletting your space, or selling the building. You could be owning one space while leasing a new one, or owning two at once…quite the financial burden. Timing may also be a problem if the market has declined and you have trouble selling or subletting, leaving you paying a mortgage longer than you had intended. If your company is stable in its location and this kind of move will be many years in the future, then it may not be a concern.
  • Do you have deep pockets? Speaking of capital – when you own, you have to be ready for unexpected expenses. The economy can go up and down, affecting your taxes, insurance, and common area maintenance costs. How will you fare if you need to replace the roof, replace mechanical systems, or repair the parking lot? When you own it, it’s your responsibility.

 

Leasing – Weigh the options

Renting vs. Owning – it’s kind of like the decision on whether to buy a car or lease a car. If you lease it, you don’t worry quite so much about the scratches.

Pros of Leasing

With leasing, there is less responsibility, for a shorter amount of time. You’ll have more flexibility if your company grows, because you can expand into new space in the same building, or move out entirely into a new space that accommodates your team…all timed with your lease expiration. If you own, the timing is much more delicate when it comes to accommodating growth, consolidation and relocation because you may have to rely on the income from the building sale.

There are tax benefits of leasing as well, because you can deduct your occupancy costs. This can protect your income from local income taxes as well as federal and state income taxes where applicable. Be sure to ask your tax advisor about this one.

 

Another point of consideration in favor of leasing – you may be able to place your business in a gorgeous signature building that you could never afford to own. Similarly, you may be able to rent in a strategic location where you could never afford to purchase.

 

Cons of Leasing

  • Do you like to be in full control? When you lease, you have less control over many things, including the ownership decisions on maintenance and upkeep, on the other tenants that share your space, and how those tenants use the parking lot, set their hours of operation, and use common areas. You could try to think ahead and negotiate these types of preferences into your own lease.
  • Can you fulfill your lease terms? What if your business slows or folds? You are still on the hook for your monthly rent if you don’t find a real estate professional to help you sublease your space. What if the landlord lets the property slide and become undesirable? When you lease, you can certainly speak up, but you are contractually obligated to continue paying monthly for a space.

 

Before you rent OR own, make a list of the pros and cons of each. Check your credit to be sure it can withstand a purchase or rental agreement. Gather your financial reports, because you’ll need to prove your financial status. Research the best place for your business and narrow down some locations. Lastly, find a real estate consultant to help you with your questions.

And remember, the decision to own or rent doesn’t have to be forever!

--The Brenner Blog Team

 

 

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