If you’re setting up a business, one of the biggest decisions you’ll have to make is whether to rent or buy the commercial real estate you’ll be operating from. Both options offer benefits and drawbacks. Ultimately, entrepreneurs need to carefully weigh all the factors and decide based on their resources and position.
Renting Commercial Spaces
Renting is very common in the United States. In fact, in 2017, more than 111 million American renters called apartments home. Many businesses also choose to rent their property space rather than buy it.
So why do businesses choose to rent commercial real estate? First, you’ll need to acquire funds to buy a commercial space. Many businesses would prefer to put their resources into other things, like marketing campaigns or hiring world-class staff members. Renting costs money too, but doesn’t require as much of a large upfront investment.
Further, when you rent a property, you can structure the lease so that the landlord is responsible for various tasks, such as trimming the lawn, paying for repairs, and handling various other things. For busy entrepreneurs, this can ease burdens and reduce stress. This way, they can focus on their business.
Buying Commercial Spaces
Some businesses will buy commercial real estate rather than rent. Often, large, established firms that can easily raise money will buy the property to hedge against rising real estate values and inflation. Buying can also be a bit cheaper than renting if you land a good real estate deal and effectively manage the property.
Buying a property might also mitigate certain risks. If property prices start to rise dramatically in your area, and you’re renting, you may see your rent prices rise. In some cases, this increase might even be enough to sink your business. If you own the property outright, these risks are substantially reduced. Indeed, if property prices rise, you can build your wealth simply by owning commercial properties.
That said, owning a property comes with many responsibilities. You will have to pay for maintenance and repairs, for example. If property prices decline in your area, you could also lose wealth and be stuck with a bad mortgage.
Still need more help deciding whether you should rent or buy? In the market for commercial real estate? You should get in touch with us so that we can provide help.