Should you buy or rent Commercial Real Estate?

Whether you own an existing business or are in the process of setting up a new business, one question that is at the forefront of all business owners’ minds is – Whether to buy or rent your business premises?

Worldwide the real estate market can fluctuate wildly and here in Fairfield, Connecticut the situation is no different.

Properties throughout Fairfield, Connecticut are subject to the same market forces that influence the global market.

So, when it comes to making the decision to buy or rent your real estate the choice isn’t always clear cut.

This article is aimed at guiding you towards making the correct decision at the right time.  

As with all business decisions it is essential to consider the pros and cons before making that final choice. Listed below are some of the factors that will help you make the correct choice.

Do your Market Research

The last thing you want to do is lose money on your investment. Simply by being aware of the current condition of the property market can be a big factor in deciding whether the time is right to make that real estate investment. 

How do the numbers stack up?

Most business decisions ultimately come down to finances. The decision whether to buy or rent your real estate is no different. Ask yourself the following questions.

  • Are mortgage or rental payments cheaper?
  • What about the upkeep costs?
  • How much will the down payment cost?

Ultimately, a purely financial assessment may be all you need to decide one way or another.

Does it fit with your business plan?

So, the market is sound, and you can afford the property. Then I should buy, right? Not necessarily, if your short-term plans involve moving premises within a few years then it is probably not worth it. Over the few years you stay in the property you may well save by paying a lower loan repayment rate than the rental cost, and you may gain some equity on the property. 

But the taxes and fees involved in selling your property after such a short time would negate these gains. It is also worth considering how it would complicate any future move. Instead of merely having to terminate your lease, you would need to consider selling your property first.

Am I in a position to buy?

Of course, it may be that the decision to buy is out of your hands. Talk to a commercial lender or bank to see if they are willing to loan the necessary money. If the answer is no, and you don’t have the required cash to buy outright then the only option is to rent your property. 

This is a particularly relevant question for new start-ups without a proven track record or financial history to prove your credentials.

Equity Considerations

If you are in a position to buy, the market is favorable and your long-term business plan supports the idea, then it really is a no-brainer. It is highly likely that once you have paid your down-payment the monthly payments will be considerably less than any rental payments would be. 

The other major factor is that the equity on your premises would always be growing, which is obviously good for your business and personal finances. You can get an idea as to what sort of growth level you can expect in Fairfield, Connecticut by consulting with a financial planner or Real Estate broker.

Conclusion

It is one of the big decisions a small business owner has to make. But ultimately, for most successful and established businesses it is probable that to buy your business real estate is the correct decision. 

Whereas for a new business just getting established, the choice is less likely to be so clear-cut. Long-term plans may not be so clear, and the financial footing of your business may not yet be strong enough to warrant such a step. 

If that is the case and rental is for you, then that is perfectly fine. But always keep an eye on the market and keep asking yourself the above questions. There may well come a time when the conditions to buy have changed in your favor and you can start building that equity!

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