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06-14-2005

Two things at the bottom of the list for most of us are Life Insurance and Moving. Both, if we had our way, we would like to do the day before we needed it. Unfortunately, it just doesn’t work that way. As I am not the person to help you with your life insurance options, I can comment on the moving part.

A big decision for all people either for your personal residence or your commercial space is should I lease or buy my property?

At some point, every tenant is faced with the dilemma of deciding whether to lease or buy his or her real estate facilities. What are the advantages and disadvantages of each? While every business is different, there are a few common factors that should be taken into consideration when evaluating whether to buy or lease office space.

Comparing the benefits of leasing versus buying from a cash standpoint is an important step, while looking at the businesses future needs. The long term space requirements are also an important part of deciding whether to lease or buy.

Often, when beginning a business, leasing appears more appealing. Cash flow is the main reason.

When a tenant is purchasing office space, it takes a larger portion of cash up front, typically a down payment between 10% and 20% of the purchase price, depending on the lender and credit, plus closing costs.

What is the opportunity costs for those dollars if used in your business? Most business owners facing this decision for the first time, the thought of borrowing money to buy commercial property is as intimidating and overwhelming as it is for a first-time homebuyer. Ownership can also bring its separate set of headaches – being responsible for maintenance and operations have a great deal of impact. It’s time away from running the business should you decide to manage the property yourself.

But buying office space certainly has its advantages. Developing equity in a building or office space can be a sensible way to grow your business or personal wealth portfolio. Business get complete control over their property.

But before any decision is made, do the homework; know the pros and cons of both buying and leasing.

􀁺 Rental rates with annual escalations based on market
    conditions.
􀁺 Loss of the reversion or the value of the property at lease end.
􀁺 No equity buildup.
􀁺 Tenant may HAVE to move at the end of the lease.

BUYING BENEFITS

􀁺 Interest on the mortgage loan is tax deductible
􀁺 Changes can be made to the building to accommodate your
    business
􀁺 You can take annual depreciation deductions on taxes
􀁺 No rent increases
􀁺 You can benefit if you sell when the market is good
􀁺 If you end up with excess space, you can lease out the extra
􀁺 No set hours of business
􀁺 You can stay at that location as long as you wish

BUYING DISADVANTAGES

􀁺 Usually requires a more initial capital to secure financing
􀁺 Property values may decline
􀁺 Owning real estate subjects the owner to various legal and
    regulatory risks not associated with leasing
􀁺 Requires owners to invest much time and energy in matters
    that are not its business, unless property is part of a unit
    owners association
􀁺 Inexperienced owners operate their real estate inefficiently and
    increase operating costs.

While the decision to buy or lease may seem difficult and overwhelming, there is help. The first step is to receive advice from a commercial real estate professional who knows the business and the market.

Getting advice and assistance from a commercial real estate professional who is involved in the business day in and day out can significantly improve your chances that you will end up in the perfect space at the right price. Many of the lease vs. buy factors can only be decided by you, but having a helping hand in the necessary areas where office expertise is important will assure you of making the best possible decision.
 

About our Expert:
Salvatore “Sam” DiFranco, CCIM, SIOR, CEA is CEO for Triangle Commercial Real Estate based in RTP, NC
and currently serves as the 2005 Chairman for the Realtors Commercial Alliance of North Carolina Association of Realtors (RCA – NCAR). He provides Buyer / Tenant Representation services to the commercial real estate industry throughout the US for investment or occupancy. Sam can be reached for a confidential no obligation consultation at 919. 677. 6100 or sam@trianglecommercial.com

CarolinaNewswire.com provides the thoughts and analysis of this columnist as a free benefit to our readers but without any representations or warranties as to the accuracy or efficacy of such thoughts or analysis. The opinions, analysis, and thoughts expressed here are those of the author only and should not be deemed as legal, financial, or tax advice from this publication. Readers with legal, financial, or tax questions should consult a professional.
 

Commercial Real Estate: Should you buy or lease your next space? - published at CarolinaNewswire.co...

http://carolinanewswire.com/news/News.cgi?database=columns%2edb&command=viewone&id=127&op=t 5/30/2007