Should You Buy or Lease Your Commercial Space in Calgary? A Comprehensive Guide for Business Owners
Probably the most major decision regarding securing space for your business is to buy or lease a commercial property. Each alternative has pros and cons, influencing everything from flexibility to long-term cost.
This article will seek to guide you through the pros and cons of each path so that you may make a sound decision based on the needs of your business.
Key Factors to Consider Before Deciding
The decision to buy or lease depends on several variables that should be considered beforehand: the size of your business, long-term goals, financial situations, market conditions and the current phase or stage of your business.
- Business Growth Stage: If one's business is still a startup or growing, leasing could give him the flexibility he might be looking for. You might prefer to buy if your business is well-established and you seek permanency with a home.
- Financial Stability: Your financial health is very important. Buying a property invests a great deal upfront, while leasing frees up cash flow that could be used for other aspects of the business.
- Market Trends: The real estate market, interest rate, and property availability at that particular time also play a part. Sometimes, it is better to lease when the market valuations are high.
Pros of Leasing Commercial Space
Many business owners appeal to this option mainly because leasing a commercial space has flexibility and low financial barriers to entry.
Flexibility for a Growing Business
Leasing offers much flexibility, especially to businesses considering expansion or relocation. Shorter lease terms enable you to easily pivot if your business grows and needs a reduction or a different location.
Lower Upfront Costs
Among the major advantages of leasing is the reduced initial financial burdens. No down payments or closing costs allow you to diversify your capital elsewhere, such as in marketing, inventories, or staffing.
Cons of Leasing Commercial Space
While leasing offers some flexibility, there are also many potential disadvantages that the entrepreneur should be aware of.
No Equity in the Property
Leasing does not give you any equity. Unlike owning, where your monthly mortgage payments go toward building equity in your property, leasing only benefits the landlord in the long run.
Potential Rent Increases
The most significant risk leasing can introduce is through the rent increases that pop up with renewals. These can significantly affect your budget and financial goals differently than expected.
Limited Control Over the Space
In a leased space, limitations exist mainly to the extent one can personalize or even renovate the property. Most of the time, you will need permission from your landlord to make any improvements.
Pros of Buying Commercial Property
Buying a commercial property would be one of the few better long-term investments mainly because it would provide complete control over the area where the business operates.
Building Equity and Long-Term Investment
As you pay your monthly mortgage, you build equity with every payment. Over time, as the value increases, it can quickly turn into a return on investment upon resale or a likely asset to leverage for more financing.
Full Control Over the Space
Ownership means modifying the space as the business grows without landlord approval. This could be critical when the company has particular operational needs or decides to change the business use.
Fixed Costs
Most commercial mortgages have fixed monthly payments, which allow a business owner to show predictability of finances long into the future. Unlike renting, which has unpredictable rent increases, ownership allows you more control over your expenses.
Cons of Buying Commercial Property
Buying does come along with its own set of challenges, particularly related to costs and flexibility.
High Initial Costs
Buying a commercial property requires 20% - 25% for a down payment, closing fees, property taxes, and ongoing maintenance. These expenses may prove to be too much to bear for the owners of a new business.
Less Flexibility
Relocation or expansion can become difficult once you have invested in a property. If your business needs to change or alter its approach or strategy quickly or grow in size, you could find yourself tied up in space that will no longer serve your needs and prevent you from making the necessary adjustment to the changed circumstances.
Questions to Ask Yourself Before Buying or Leasing
To make the best decision for your business, here are some key questions to reflect on:
What are your long-term business goals?
If you anticipate rapid growth or are unsure what City your business will be operating in five years, leasing may provide the flexibility you need. Conversely, buying can be a better investment if your business is stable and you are committed to a specific location.
How much can your business afford?
Leasing requires lower upfront costs, but buying may provide financial stability over the longer term. Consider your cash flow and then analyze how much you can afford to pay for the initial and ongoing costs of property ownership.
Will owning property benefit your company in the long run?
For many businesses, property can serve as all-important capital. Consider whether buying fits your long-term strategy and what returns you'll make on that investment over time.
How stable is your business?
Owning might make sense if your business is at a stage where it is stable, with steady revenue. If you're still experimenting with your business model, leasing provides much more flexibility, just as it does when scaling up faster.
Is now the right time?
The market conditions should govern your decision. Very high prices for real estate or low interest rates would favour your decision, so closely consider the current trend before deciding to buy or lease.
Making the Best Decision for Your Business
Buying or leasing commercial space largely depends on your business's financial health and long-term goals. Each option has advantages and disadvantages, and the right decision will ultimately depend on what works best within your specific business needs.
Any commitment should be made after an extra-careful look at your situation. Contact a Commercial Realtor to help you evaluate the best decision based on your situation. What works for each person will vary, and no 'one size fits all' solution exists for your unique business.