Whether you are a completely new business owner or have been established for years—whether you are into retail, service, or business-to-business sales—whatever your business situation, if you need commercial property in Tumwater, eventually you need to answer one question: should I buy or lease?
Both choices involve many factors to consider, and also can have a long-lasting impact on your business. Kaufman Construction and Development has the answers you need. With over fifty years in the business of developing Western Washington, the Kaufman family knows a thing or two about buying and leasing property. Let this guide help you decide which is right for your business.
If you are thinking about buying, you can be prepared to discover several advantages of owning your commercial property.
Full Control. The property is yours, so you don’t have to put up with a landlord, who typically has the right to increase your rent once per calendar year (if not more!). Assuming you have a fixed rate mortgage, you’ll have one predictable payment to make every month that won’t increase on you over time.
Build Equity. Just as many homeowners come to realize they’ve been throwing their money down a hole during all those years spent renting, business owners can also benefit from building equity in the commercial properties they own in Tumwater. Every monthly mortgage payment you make is growing the value of your business, which can lead to significant growth if you eventually sell the property or refinance your loan.
Rental Profit. If you own your commercial property, then you have the freedom to rent out any unneeded space. For example, imagine that your retail shop only requires about 60% of the building you purchased. The remaining 40% can be rented out to tenants who need offices, space for a cafe, or any other business that the area is zoned for. Renting is a great way to make back some of the cost of your mortgage.
Appreciating Value. Real estate is one of the least volatile investment opportunities. Odds are, the value of your commercial property will increase over time eventually. So if you purchase an office space for $175,000 and ten years down the line the value has appreciated to $200,000, then you will earn $25,000 profit if you decide to sell.
Sounds like a pretty good deal so far, eh? Not so fast. All those benefits do come with some pretty hefty costs that often preclude business owners from buying their property.
Insurmountable Upfront Costs. Getting a loan to buy commercial property typically requires a down payment of 10 to 20 percent of the purchase price. Add on to this closing costs and due diligence fees (for inspections, permits, attorneys, etc.) and you would need to cough up about $65,000 cash to initiate a $250,000 purchase. This is a lot more than most new business owners have lying around, so the upfront costs alone make buying a poor choice for many.
Liability. Just like your home, you will be responsible for the upkeep of your commercial property. If you are renting out some of the space, you’ll also need to take on the liability of the tenants, ensuring that their space is safe and properly maintained. Typically, you’ll need to purchase additional insurance policies and adhere to strict landlord laws as well.
Inflexibility. Purchasing property is a semi-permanent decision. Mortgage terms are generally 15 to 30 years, and while you could sell the property, doing so is a long and complicated process that depends a lot on the state of the market at any given time.
Buying commercial property might be for you if you are a well-established business with capital to spend and no plans to relocate or expand your space any time this decade. For most businesses, however, leasing commercial property is going to be the ideal choice for a variety of reasons.
Low Upfront Costs. The initial cost of leasing can be as little as 15% of what it would cost to buy. You don’t need to worry about down payment, so most of this money is going to your security deposit and fees for attorneys, inspection, and similar services. All that money saved means you’ve got more capital to invest in growing your business.
Tax Deductions. Because you aren’t building equity, the full cost of your lease counts as a tax-deductible business expense. This tax break is a great help to newer businesses who are still struggling to turn a profit.
Flexibility. At any given time, there are usually more properties available to rent than there are to buy. This means that when you lease, you are freer to pick and choose until you find exactly the right space for your business.
Furthermore, once you do sign your lease, you aren’t locking yourself into decades-long loan terms. Lease contracts are typically short term. If your business grows, you have trouble with your landlord, or you discover a better location, it’s much easier to relocate to a new space when you are leasing.