To Lease or To Buy? Issues Relating To Both In Today’s Market

small business buy vs. lease

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3.  You haven’t found a suitable property to lease.

You may want to lease, but have found all properties that would be suitable for your needs have been offered only for sale, rather than lease.

4.  You are in an area of appreciating land values.

If you will locate in an area where you think land values will continue to increase, it would be better to own the property (and thereby get the benefit of this appreciation if you ever sell) rather than to rent it. This is would be particularly true if you are able to spot this real estate trend before prices jump up in recognition of it.

5.  A purchase may bring you tax savings.

Although, unlike rent, the money you use to purchase your facility is not deductible, you are allowed to recover this outlay over time by yearly depreciation deductions. If you financed your purchase, interest-paid deductions are also available.

Depending on several factors, such as how long your have been in business, how profitable your business has been, and what portion of the purchase price or rent relates to the land itself — rather than to buildings — a purchase may actually cut your tax bill when compared with a lease.

On the other hand, the following factors, if relevant to your situation, may lead you to conclude that you should lease, rather than purchase, your business facility:

6.  Your current cash flow is of vital importance.

Particularly in the early years, a lease may be better than a purchase from a cash flow perspective.

This is because up-front outlays associated with a lease are usually less than those required with a property purchase. With a lease, your main initial cash expense may well be limited to your security deposit, plus first rent payment.

With a purchase, you have to have the lump-sum purchase price, or at least a down payment on a mortgage.

7.  You don’t want maintenance duties.

Many leases place the duty of maintaining the property on the landlord. Examples of such maintenance can include the things that are necessary to ensure the continued structural soundness of the building (such as roof repairs and periodic maintenance and maintenance of heating and cooling, electric, and plumbing equipment), and those that go to the facility’s ease of use and appearance (such as snow shoveling of walkways and parking lots and cleaning of windows and common hallways).

8.  You want to retain your mobility.

Maybe you’re not sure that the facility that you will select now will serve your needs several years in the future. You may need more or less space, your target market may have moved elsewhere, or better-suited properties may later be built.

9.  Your company’s credit rating may not support a mortgage.

If your business is rather new, or has experienced some financial difficulties, lenders may not be willing to extend it sufficient credit for a mortgage on the facility. With the same financial situation, however, a property owner may well be willing to rent a property to your business.

9.  You haven’t found a suitable property to buy.

You may want to buy, but have found that all properties that would be suitable for your needs have been offered only on a lease basis.

10.  The facility may be in an area of declining real estate values.

You may find a facility that meets your needs, but you are concerned that the real estate values in the area are stagnate, or may actually drop in value. In this case, leasing makes sense: let the landlord suffer the effect of the declining values, not you!

Next part 9 will cover the Familiarizing Yourself With Standard Commercial Lease Provisions

Realted articles:

Lease Or Buy Space?

Should You Rent or Buy Your Office?

10 Don’ts for Small Business Owners and Entrepreneurs

This series ongoing series  handbook prepared by Marjorie Weber was prepared will also be part of the Miami Bayside Foundation to qualify small business owners for the Miami Bayside Foundation loan program.

Handbook series Small Business Start Up Part 1: Small Business Start Ups Making It Legal; Part 2: Small Business Start Up Capitall Access Primer and Key Steps ; Part 3  Definitive Steps to Create the Optimal Small Business Growth Team; Part 4: Once You Have the Dream Team, It’s About Employee Retention, Part 5: Delegating Responsibilities Policies and Procedures – Letting Go Part 6: Breaking Down the Set Up of Small Business Financial Records   Part 7: Three Best Bet Picks for Small Business Accounting Software  

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