As you put the finishing touches on your business plan, you may realize that you need a place to actually run your business. Although starting a business out of your home is always an option, many small businesses decide to either rent or buy a space that they can devote exclusively to business pursuits. This guide shows you the basic benefits and disadvantages of each choice.
There are many types of commercial properties available for rent. You may choose to lease an entire property, or opt for a specific pad from a selection of available spaces in a larger commercial property.
For new businesses, the biggest benefit is that you can pay far less money up front. If you have limited money coming in, you must preserve cash flow. Otherwise, you may run out of money to purchase supplies, necessary services, or to pay yourself and your employees. With a deposit that may be much smaller than a down payment, you can get access to a space of a size that you need. You can also let the owners be responsible for maintenance of the exterior property, which often includes the parking lot.
If you plan to use the property for many years, leasing it may actually cost more money. With a lease, you never accrue equity in the property. This means that if you end the contract, you have only rented use and not generated any personal interest. Over time, this difference may turn out to be tens of thousands or hundreds of thousands of dollars. As a tenant, you are at the whims of the property owners as well. When your lease renewal comes up, they may increase the prices dramatically or decide not to renew your lease at their preference.
Buying property for your business is much like buying a home. You will search out and engage the services of a real estate agent to help you find available properties for sale that fit your needs.
If you require a lot of space or you plan to keep your business in one location for a long time, buying the property may be an ideal choice. It is a notable investment at first, but it has many advantages. First, you are beholden to no one and can run the business as you like. Second, you will own the property and can sell it later at a profit if you decide that you want to move to something bigger later on. Leasing large or small spaces might cost almost as much as a mortgage payment on a similar lot size.
In order to be able to buy the property, you must have the financial security to do so. Buying any property, especially for a business, usually calls for a fairly significant down payment. You must be prepared to have that money tied up in the business property for several years, at least long enough for you to get the value out of the investment. In addition, you may not be able to claim all of the property expenses on your business taxes, as you could with a traditional lease agreement. You are also on the hook for all upkeep to the property.
There are a lot of concerns about a new business that have potential pitfalls. The choice to buy business property could land you with a great long-term investment, or tie up too much money. Renting business property might get you in a great place sooner, but give you no power over your business’s current location. With the pros and cons, you can make the right decision for your needs.
About Author: Gary Ashton: CEO/Owner of The Ashton Real Estate Group of RE/MAX Advantage. They are the #1 RE/MAX team in Tennessee and the #4 RE/MAX team in USA, #4 in the world. They are also the Official Real Estate Team for The Tennessee Titans NFL team and the only team that Barbara Corcoran (Shark Tank) trusts and endorses in Nashville.
The Ashton Real Estate Group – RE/MAX Advantage
210 12th Ave South, Suite 201
Nashville, TN, 37203