When it comes to leasing or buying a commercial real estate property, there are a number of advantages and disadvantages to consider before making that big decision. While the market can be unpredictable and intimidating, unfortunately there is no fool proof way of determining which option is overall the best.
Taking into consideration these pros and cons that we’ve compiled from QuickBooks’ article on “Leasing vs. Owning Commercial Space” and LeaseMatrtix’s “The Pros and Cons of Leasing vs. Owning”, in addition to your own finances, objectives, and motives will help you in making the best investment decision for your circumstances.
Here are just a few pros and cons to consider:
Leasing Pros:
- No Down Payment: Ahh music to one’s ears, especially if your finances are limited. Leasing a property, unlike purchasing a property does not require a hefty down payment.
- Tax Benefits: Leasing a property allows you to deduct all of your costs.
- Expiration Dates: Leasing a property insures an expiration date in the near future. This means that if for any reason the property doesn’t work out ( location, size, etc.) you have the liberty of moving on.
- Easier to Qualify: Leasing a property is much easier to qualify for, given that in some instances no credit check is needed.
Leasing Cons:
- Higher Costs: In the long run, leasing a property will cost you more.
- Lack of Control: Leasing a property means you have less control over what you can and cannot do with the property you are leasing.
Buying Pros:
- Property Appreciates: Purchasing a property provides the benefit of appreciation over time.
- Tax Benefits: Purchasing a property allows you, the owner to benefit from interest and depreciation deductions.
- Income: Purchasing a property that you later lease to a tenant, allows for a steady cash-flow that contributes to paying off the property’s mortgage.
- Control: Purchasing a property means that you have total control over what can and cannot be done to the property.
Buying Cons:
- Down Payment Required: Unfortunately purchasing a property does require a down payment, which can range anywhere from 10% – 30%.
- Costs: With great power comes even greater responsibility. What this means is that ongoing costs do accrue, especially if you plan to lease the property, which would require you to continuously maintain the property for your tenants.
The truth of the matter is that one option is not necessarily better than the other. In order to make the best decision, you should consider your finances and your long-term/short-term goals in order to make the decision that better suits you and your plans.
In fact, there are a number of resources online that can help give you a perspective as to which option is better suited for you and your goals. Here at myNOI we cultivate a number of blogs with tips and tools to help you along your commercial real estate path. Explore our easy to use cape rate service, investment tools, and our weekly posts by subscribing below.
Another helpful tool is NYCRG’s Rent vs. Buy calculator , which you can use to help compare the costs of renting or buying a property in your area.
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