As a small business owner, whether you build websites, design jewelry, do bookkeeping, or jar your own tomato sauce, you will eventually face an important decision about the future of your business. Are ready to move your business from an at-home operation to a specialized office, manufacturing, or retail space? And are you better off leasing or should you purchase commercial real estate?
When you’re ready to move your business operations to a new location, ask yourself these three questions to determine if leasing or purchasing commercial real estate is the right option for your small business.
Is Leasing or Buying More Financially Responsible?
The geographic region where you set up your office, retail, or manufacturing space, can be a big factor in whether it’s more affordable to lease or purchase commercial property. In an area where you can rent commercial space for $2 per square foot, leasing may be the more affordable option. However, a lease rate of $5 per square foot may entice small business owners to pursue the option of buying their own commercial property.
Market Watch perfectly illustrates the differences in office space size you can rent for $5,000 in major cities across the U.S. Although, small businesses in Berks County and the surrounding regions may not see such big differences, the location where you “set up shop” can affect whether leasing or buying is a better deal.
Do I Have a Down Payment?
Just like buying a new home, purchasing commercial real estate for your business will require a down payment. The required down payment can be 10% – 20% of the purchase price depending on the type of real estate loan you apply for. In contrast, leasing space requires an initial deposit and monthly rent payments.
How Much Flexibility Do I Need?
When you’re leasing a space for your small business operations, you have the ability to move out when your lease comes to an end. So if your business continues to grow, you can relocate to a bigger space or different location without the added step of having to sell your current business space.
Tax Benefits of Commercial Real Estate
Another deciding factor in the decision to lease or purchase commercial real estate is the tax benefits that each option provides. Property owners are able to take tax deductions on their mortgage interest payments and property taxes. Additionally, small business owners can claim an annual depreciation of their property on their tax returns.
Leasing commercial property also carries tax advantages. Lease payments can be deducted as a business expense and reduce a business’s tax burden.
At Diamond Credit Union, we know that every small business has a unique story and different needs. Let us help your business grow with the right commercial real estate financing. To speak directly with the Business Services Division, call 610-326-5490, ext. 2123.