Should You Buy Or Lease When Expanding Your Business?

If your business is growing at a rapid rate, you may be contemplating some cost-effective ways to expand your business? Should you build your own building or lease one? What is the best commercial business space for you?

If you are having trouble deciding, it’s only because you are not clear about the reasons for your expansion. Everything depends on the nature of your business and why you want to expand it. Once you get clear on your reasons why you want to expand, then it’s easy enough to look at each option and get a step-by-step breakdown.

So, first, decide why you want to expand your business as this will give you some ideas on how much space you will need; then, get a cost analysis of each option. After clarifying why you want to expand your business, you’ll be in a much better position to decide how you will expand it.

A Simple Alternative

If you just need an extra warehouse for your inventory or to hire more workers for your cottage industry business, then you may not need to buy or lease a commercial building at all. It will be far less expensive and hassle-free to purchase a commercial steel building.

The steel building cost per square foot is quite reasonable compared to what you might pay for buying a building or leasing one for many years. On average, the cost of a commercial steel building cost per square foot can be as low as $16 to $20 per square foot. This price includes the cost of things like girts, purlins, I-Beams, etc. It also covers the cost of delivery, the cost of the foundation, and the cost of the construction.

However, if you need a business for some more elaborate purpose that requires a regular brick-and-mortar building, like a casino or a grocery store, then here are some things to think about on whether you should buy or lease.

When You Should Buy

You should buy a building under the following situations:

  • ·  If you want to control the property. If, say, you’re building a motel, then you may need the freedom to be innovative. Perhaps, there will be a future need to add more rooms or build a swimming pool. If you are planning to build out the property as your business expands, then a lease would be far too restrictive.
  • ·  If the advantages of long-term cost are important for your business. Perhaps, you are thinking of a business that will only grow in value over the years. In this case, you are thinking of an investment and it makes perfect sense to bypass the profit premium of paying a landlord.
  • ·  If location is important for your business, then it is more sensible to buy the building. Some businesses are very location dependent. For instance, a gas station has to be positioned in a place where there are plenty of cars who can see it.
  • ·  If you can’t lease in the area that you want and for the purpose that you want, then you may have no choice but to buy a building.
  • ·  If you happen to live in a geographical area where the land value steadily appreciates, it may be worth buying property.
  • ·  If buying a property will bring you significant tax savings. Renting a property is not tax deductible, but purchasing one is.

When You Should Lease

You should lease a building if the following conditions apply to you:

  • If you don’t have enough cash flow to buy a property. This may be true for you if you have only been in business for a few years and don’t want to tie up a significant amount of the cash that you will need to cover your overheads. In this case, paying a security deposit and the first month’s rent suits you best. Purchasing a commercial property requires you to either put a down payment on the mortgage or cover the lump sum of the buying price.
  • ·  If you don’t have the time or money to do maintenance.
  • ·  If your business is not location dependent and you only want to own a business for a few years before you retire. Perhaps, you want to own a gift shop for a few years and don’t plan on creating a long-lasting business.
  • ·  If your company has a low credit-rating that prevents you getting a mortgage, then leasing is your only option.
  • ·  If you plan to buy in the future but are not yet ready to make the commitment. Perhaps, you are not sure how well the business will do. Perhaps, you are in an area where real estate values are declining. Or perhaps, you may, perhaps, be waiting for better suited properties to be developed closer to your target market.

Clarify Your Wants, Needs, and Desires

Once you get clear on what it is that you want for your business, then the question of how you will expand your business becomes rather easy to answer. If you just need more storage or working space, then it might be simpler to buy a commercial steel building. If you plan to create a long-term business, then it makes more sense to buy. And if you are only looking for low upfront costs, then leasing will work perfectly for you.

 


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August 10, 2016 Should You Buy Or Lease When Expanding Your Business?