Business Owners Should Consider the Benefits of Purchasing Versus Leasing Commercial Real Estate
Frank Tapia, Vice President,
Business Banking Originally published in the Long Beach Business Journal
Often, savvy business owners need to evaluate if the existing property they’re located in is right for their long-term business needs. This can certainly be the case if the business has recently experienced growth or needs additional locations in order to do so. Since all situations vary, each business owner must determine if renting or owning a commercial property makes sense for them.
Although many may realize it’s preferred to purchase a home rather than rent, many may not realize that paying a commercial mortgage can also be more reasonable than renting. In fact, in a recent analysis, it was estimated that it could cost 86.6% more to lease vs. purchase a commercial real estate property over a 15-year occupancy period*.
In fact, one of our valued clients, a retail store with the same location for the past seven years, consistently grew each year. Of course, with each passing year, they were outgrowing the space they needed.
As this growth was occurring, the landlord was concurrently raising the rent each year. They were forced to take on an additional location, due to limited space. But, it wasn’t until the end of 2017, they had a reality check. Their landlord suddenly decided to put a shopping center where the store was located.
During this time, the business owner was already a First Bank client. As with all of our clients, we regularly reached out to see if we could be of assistance in any way. The store owner indicated their situation, and we suggested they consider owning their property versus paying over $140k a year or more in rent. Surprisingly, owning a building never crossed their mind as they weren’t familiar with the process and questioned if they would even qualify to purchase a commercial property. Fortunately, they found the ideal property to purchase, and First Bank was quickly able to assist in their financing needs.
While renting, they paid over $140k annually; however, their mortgage is now approximately $69,000 a year. The new, purchased space is more than enough to grow with them. Not only will this client enjoy the upside of building equity and the potential tax advantages, but also increasing their assets under the business.
If your business is poised for growth, and you’re ready to purchase the right property to help make that happen, consult your trusted advisory team. With First Bank, we’ll work to assess your specific long-term needs, your financing options, and help determine if purchasing instead of leasing makes sense for your business. After all, a good business starts with a great foundation. Let’s start building.
Always consult a tax advisor. *Source: Fitsmallbusiness
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