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Guest Columnists Profiles Article Archives
Commercial Real Estate: Should you buy or
lease your next space?
06-14-2005
By Salvatore “Sam” DiFranco, CCIM,
SIOR, CEA
CEO - Triangle Commercial Real Estate
Guest Columnist Special Feature:
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?
Lease Vs. Buy
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.
LEASE BENEFITS:
Credit ratings are not quite as
crucial compared to buying.
Don’t need to worry about selling if moving to a new location
Your monthly rent is a tax deduction as a business expense.
You have the freedom to sublet or move if need be at the
expiration of the lease.
No loss if owning in a
bad market.
LEASE
DISADVANTAGES:
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
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