Friday, September 6, 2013

Should Your Business Buy or Lease Its Location?

(Note:  This is a “guest article” co-authored by Verity Commercial, LLC and Gross & Romanick)

A common question asked by business owners to their attorneys and real estate advisors is whether it is wiser to buy or lease property for their business.  Much to their dismay, we usually answer with the infamous “it depends”, as the answer to the question hinges on a multitude of factors, both qualitative and quantitative, that are unique to each client. 
Some of the qualitative factors to be considered by the business owner include the following:

·               Long term business goals
·               Potential for business growth and expansion
·               Need for capital financing
·               Anticipated return on already invested capital
·               Previous costs of occupancy
·               Resources applied to occupancy
·               Risk aversion

Some of the quantitative factors to be considered by the business owner include the following:

·               Initial cash outlay
·               Fixed and variable costs
·               Anticipated appreciation
·               Tax treatment (consult accountant)

There are definite advantages and disadvantages to owning property versus leasing property.  Some of the advantages of owning the real estate in which the business operates include the following:

·               You are your own landlord
·               Greater business stability
·               Control over variable costs of operation (maintenance, repairs, insurance, utilities, etc.)
·               Potential for long term gain with appreciation
·               Ability to lease space to third parties
·               No annual increase in occupancy cost
·               Deduction of depreciation (consult accountant)

At the same time, there are definite advantages to leasing property, including the following:

·               Smaller up-front cash outlay
·               Limited responsibility for property management
·               Greater flexibility to relocate/expand/contract
·               Deduction of rent as business expense (consult accountant)
·               No risk of depreciation
·               Can negotiate an option to purchase

It is important that you consult with your attorney and real estate advisor before making a decision with respect to buying versus leasing.    

The law firm of Gross & Romanick has extensive experience in real estate leasing and purchasing transactions. 

Verity Commercial is an experienced leasing and sales brokerage firm, which can be reached at 703-435-4007 or ktraenkle@veritycommercial.com