The Big Question: Lease vs. Buy

The Big Question: Lease vs. Buy

Considering a move?

For businesses looking to expand or move, one of the first matters at hand is: Leasing vs. Buying. A serious question. There really is no short answer. It requires diligent examination; as with every large endeavor, every detail matters.

 

Leasing vs. Buying

Usually, the most logical place to start is by examining the benefits and drawbacks of each of you options, especially as they pertain to your business. For example, a business undergoing rapid growth may consider buying a building to accommodate future expansion rather than increasing their leasing space – and expenses – as the company grows.

To help with your decision-making, here is a list of some pros and cons.

 

Benefits of Leasing

  • Property costs are spread out over the term of the lease.
  • The landlord pays for the cost of capital and repairs.
  • You can free up more money to put back into the business.
  • You are able to lease property in a prime location with fewer budget restrictions.
  • You have the flexibility to relocate at the end of the lease.
  • You have no responsibility for the building if it is damaged due to fire, storm, floods, etc.
  • Long-term costs of leasing are easier to forecast and budget.

Drawbacks of Leasing

  • You will have no control over the other tenants in the building. They could have a negative impact on parking, hours of operation, use, and compatibility.
  • For a business with easy access to capital, leasing may actually turn out to be more expensive than owning.
  • Even if your business becomes unprofitable, you must continue paying rent or face penalties to get out of the lease.
  • Most leases stipulate that the landlord may require you to remove 
any improvements you made to the premises.

 

Benefits of Buying

  • After the initial upfront costs, ongoing costs may actually be less.
  • You’ll have an asset for the business, and any appreciation that comes with it.
  • You have full control over the property and can make changes to suit your needs.
  • You will gain equity as you pay down the mortgage.
  • You have the option to lease part of the property to someone else, and you can use that money to help pay the mortgage more quickly, or reinvest.
  • You’ll have some tax shelter in the interest and depreciation deductions. Also, upon the sale of the property, the tax on the gains is usually lower than on ordinary income. The capital gains tax rate is currently 20% and depreciation recapture is 25%.

Drawbacks of Buying

  • Relocating may be more difficult. The process could take months or even years.
  • The down payment is often 20-30 percent. This is money you could otherwise use for the business.
  • Property management issues can become complex in areas such as legal compliance, health and safety, and maintenance issues–which can be costly.
  • The ability to refinance may be limited in times of economic recession or depression.
  • There are several transaction costs associated with buying a commercial property.

Leasing or buying commercial real estate is a big commitment–of both your time and your finances. You may want to check out DBG’s great tool for assisting with the decision-making process: a Buy vs. Lease Analysis Tool.

And a final note: If you have decided to proceed with purchasing a property, you also have the option of constructing a brand new building to suit your needs. You can always contact a qualified General Contractor to discuss your property and project needs.

Check back with our blog frequently to view future posts on that topic, and take a peek at some of our finished projects! If you have any questions about current or future projects, we would love to hear from you!

4 Reasons to Hire a Professional General Contractor

4 Reasons to Hire a Professional General Contractor

Television makes construction and renovations look so easy. Hire a few people to help you slap down some fresh paint and lay a few tiles and you’re good to go. Maybe just rebuild a wall here or there. Find an electrician to rewire the room and voila! Job done!

In reality, it is rarely that easy. If you think that a particular job is beyond your do-it-yourself skills, you’ll need a general contractor to help break-down and implement your project. If the job is as simple as replacing a leaky sink in the bathroom, you can probably handle hiring a plumber yourself. But, when you launch a ground-up project for your new business location or need major renovations, save yourself a few headaches; don’t be your own general contractor.

Reasons to Hire a Professional General Contractor

 

Save Money

A good general contractor is familiar with the local trade companies and know what they charge.

When you hire a company with local market experience, you hire someone who has spent time cultivating quality relationships with subcontractors. A general contractor who has taken the time to source and team up with subcontractors usually offers the best price and the best quality work. These types of experienced teams usually produce realistic time lines for project completion and deliver according to schedule.

An experienced general contractor may also be able to offer Guaranteed Maximum Pricing, assuming the risk of cost overruns and sparing your wallet the extra fees.

 

Save Time

If your rapid company growth requires new or expanded facilities, then your time and energy are most likely committed to supervising and encouraging that growth.

It’s worth considering – do you have the time to receive and critique bids from multiple contractors, and ensure that every aspect of the project is covered?

This is the value of a General Contractor: She handles bids, monitors progress, and doesn’t need to learn a new trade while handling her primary trade full-time.

 

Job Done Right the 1st Time

You will get the job done right the first time. When you don’t spend time hiring, working with, or vetting local tradesmen, it is difficult to determine which subcontractors deliver a great pitch, but then provide subpar work.

An experienced general contractor is familiar with the quality of work done by the people in your area. She will know who to avoid, which tradesman to use for which tasks, and which subcontractors she can reach out to in case of emergencies.

Regardless of the project’s phase, a good general contractor is prepared with contingencies, back-up plans, and a reservoir of trusted subcontractors to get the job done.

 

Experience Makes for Smooth Inspections

Building inspections go more smoothly. Your professional general contractor knows at which points (yes, more than one for some projects) to call for inspections.

You want someone who has taken the time to develop transparent relationships with local officials. A general contractor who has an adversarial relationship with the building department is more likely to experience delays in permit approvals and scheduled inspections. A general contractor who has taken the time to abide by regulations and be in good standing with officials doesn’t get pushed to the back of the line. This helps on keeping costs down too.

Paying for extra inspections adds up in both time and money, as does fixing things that weren’t up to code to begin with.

 

If you are considering expanding your business and need help building or renovating, please contact us to find out how we can help you. With over ten years of experience in the commerical construction , we can get your job done on budget and on time.