When your small business venture is ready to come off the page, out of your house and into a storefront, there are a couple of decisions you will need to make about your commercial real estate. One of the first questions you may have is whether to buy a property or lease an existing property.

Buy

Finding the perfect commercial real estate may be one of the biggest decisions of any new small business. Buying your property can mean a level of customization, including from the ground up, that may not be available any other way. Property is always a finite resource and seldom if ever goes down in value over the long term. The equity you build in your property can help you acquire other business loans down the road as you improve and grow your business and of course, there are the tax writeoffs for interest and expenses. On the other hand, buying property, just like any other large tangible asset usually requires a hefty downpayment. If you need a loan for that downpayment, it can be difficult to qualify since your new business hasn’t established credit. You may have to use your private property including your home to qualify for a business loan. If the cons outweigh the pros for you, look at the next option.

Lease

Choosing to lease can provide you a level of flexibility you won’t have with a purchase. Maybe you see this storefront as the very first in a long line of expansions that will require relocating every few years. If that’s the case, tying up your funds by buying property doesn’t make sense. While a lease gives you the flexibility to move it doesn’t give you flexibility about the building. The lessor will have expectations and requirements for what you can do to change the space and may have rules about the types of business that they will accept. While you will keep more capital on hand in the beginning, you won’t be building equity so future loans will rely on the success of your business. Rent can also be a big drain, especially if your neighborhood becomes suddenly popular, your lease renewal rate may price you out of your established location. On the other hand, you are unlikely to buy an entire strip mall of businesses and if you want the foot traffic provided by an anchor store, you will need to lease. 

You can see that the decision to lease or buy is really dependent on your long-term plans. Make sure you’ve got a vision in place before you make your commercial real estate decisions.