With interest rates at historic lows and real estate just recovering from a downturn, is this the time to purchase commercial real estate and stop leasing your office or warehouse space?

If you plan to stay in the same business location for 7 or more years, then buying is generally much less expensive than leasing.    However, when evaluating whether to lease or buy your business location, cost is not the only factor.  Other important factors to consider which can make leasing more attractive are:

  • Buying is going to cost you a lot more upfront than leasing.  Can you afford to tie up money in the down payment for a mortgage?
  • Even if you can afford it, would that money be better spent if you invest it in growing your business?
  • Will you outgrow your space and need to move in the next few years?
  • Do you want to deal with the added hassle of maintaining the property?

Tax Savings & Other Considerations

When leasing commercial real estate, you can generally deduct all your costs.  This is not true when buying commercial real estate, although you can deduct your mortgage interest expense, and recurring costs of maintenance, and the depreciation of the building.  These deductions and the actual cash outflows may not be the same.

If you buy your property through a separate corporate entity, you can then rent the property to your main business.  If you set the rent at your mortgage payment + depreciation, then you can create a tax deferred stream of income.  Having the property in a separate entity also shields it from liability associated with your primary business.  If something happens and your main business is sued, your property is protected.

If you ever decide to sell your business, then you can do so without losing your property, and continue earning rent on your property after you sell the business.  Conversely, if you ever need to raise money for your business, you can sell the property without selling the business.

What’s right for your business?

We have great calculators that allow us to play with all of the “what ifs” when considering buying or leasing.  This makes sure that you get the best advice before making long term decisions about your business property.