Leasing vs. Owning Commercial Space

Many people think of McDonald’s as merely a fast-food chain, but the company actually owns some of the best real estate in the country. McDonald’s realized early on that the biggest money wasn’t in selling hamburgers; it was in buying up choice properties. The company then built a restaurant on each site and leased it to a franchisee, who ran the eatery and paid rent to the corporate office. This model remains intact today.

Of course, many small-business owners can only afford to lease retail or office space when they’re just starting out — and that rent often consumes a large part of their monthly budget. However, money isn’t the only reason to choose renting over owning.

To determine whether leasing or buying would work better for you, consider three big advantages of each:

Leasing

  1. No down payment is required. You typically need a down payment to buy property, which can take a huge chunk out of your startup budget or cash reserves. By leasing, you can invest that capital in growing your business — and keep the option of buying open for later, when your finances are stable.
  2. Repairs are handled by property management. When you lease space, if the air conditioner breaks (as it eventually will), all you’ll have to do is call the property manager and wait for someone to show up and fix it. If you own that same space, you’ll be forking over thousands of dollars on repairs every time something major fails.
  3. You have short-term options. As your business expands, it may grow out of its space. By signing a lease of one to five years, you’ll have the option to move to a new spot as your needs change. Leasing also gives you the opportunity to try out an area of town to determine whether it’s a convenient location for your clients and staff.

Owning

  1. Property is an investment. As McDonald’s learned, real estate is an investment that pays off over time. Granted, property values have been on the decline in recent years. But that means you may be able to buy low now and see the value appreciate over the next few years. In fact, given the low interest rates and prices of late, it’s never been a better time to buy commercial real estate, Forbes asserts.
  2. You can save money. Although a down payment can tax your budget, buying a property gives you the option of refinancing and eventually paying off the mortgage balance (after which there’s no monthly payment). Because rents are subject to increase over time, owning can be better than leasing in the long run.
  3. You are your own landlord. When you own a space, you have control over what you do to it. If you want to paint the walls purple or update the windows and doors, you can — without needing anyone else’s permission. This freedom can come in handy as your business evolves.

About Stephanie Faris

Stephanie is a freelance writer and young adult/middle grade novelist, who also works in information systems. Her first book, 30 Days of No Gossip, will be released by Simon and Schuster in spring 2014. She lives in Nashville with her husband.
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10 comments
Centennial
Centennial

This is a nice post in an interesting line of content.Thanks for sharing this article, great way of bring such topic to discussion.

Sam Fairhurst
Sam Fairhurst

There are benefits of both leasing and owning real estate for businesses, and these benefits vary depending on size of the business, how long the business has been up and running, as well as many more variables.  It is important that a business chooses the right option, and puts itself in the best position possible to be successful.  Speaking with real estate lawyers is something that all businesses should do before leasing or buying real estate.

www.marzellalawgroup.com

dcbi
dcbi

This article was poorly researched.

Commercial landlords often DO NOT perform repairs, or pay for build out.

Furthermore, a tenant may pay for some of the costs of maintenance performed by a landlord.   If the tenant pays all of the costs, this is called a triple net lease.

On the other hand, loans to purchase commercial property are generally much more difficult to

obtain, 30 year loans are often impossible to obtain, and the terms of such loans are often re-negotiated every 5 years.

OmniLeasing
OmniLeasing

Both ways are a good way to go about getting commercial space. It really depends on your company needs, and where you plan on taking your company. No repairs on leasing is a great feature, but so is buying your property and making it an investment! Keep up the great articles, I enjoy checking in and reading your posts!  

Ernie
Ernie

Both ways are a good way to go about getting commercial space. It really depends on your company needs, and where you plan on taking your company. No repairs on leasing is a great feature, but so is buying your property and making it an investment! Keep up the great articles, I enjoy checking in and reading your posts!

Carlos Feener
Carlos Feener

Thanks for sharing the points.  If you have money and the location is good then I prefer buying an office space than lease.  The thing that comes to my mind is aside from creating a business on my office space is you can lease it and make it as passive income if someone rents your space.  The only disadvantage of owning one office space is the price of the space.   That is the main reason why many businesses are in a leased space.

TOO office rental
TOO office rental

I agree with Core 3 PM. There are only 3 reasons for leasing mentioned, but there are way more of course. Think about a flexible office which you can rent for a shorter period. Ideal for very small companies.

Commercial Office Space
Commercial Office Space

I don’t know how should I give you thanks! I am totally stunned by your article. You saved my time. Thanks a million for sharing this article

Office Space To Rent
Office Space To Rent

Thanks for sharing this great information. I think a better office space improve our business. In comfortable office space we can work with very efficiently.

Core 3 PM
Core 3 PM

While I can see how owning has its advantages I believe that leasing is a better way to go for most businesses.  With leasing you can focus on running your business not maintaining and managing your building.  I always feel its best to spend your time doing what you do best.  If you sell computers, sell computers and have someone else take care of the headaches of managing a property.  Taking care of a property can consume a lot more time that you realize.