Business premises are either purchased or leased. The latter option entails renting a commercial property for a specified duration that can be extended depending on the terms of the agreement. On the other hand, buying involves acquiring commercial property either with a loan or purchasing it outrightly. To decide whether you should buy or lease commercial property in Los Angeles, you have to consider several factors, including, among others,
- business equity
- tax implications
- recurring costs
- cash outflows
Here’s detailed information on this topic.
Why Consider Buying a Commercial Real Estate Property
Buying commercial property may be the ideal move for you because:
- It will allow you to build equity as well as long-term wealth.
- It comes with certain tax advantages.
- With the right lender, like Fidelity Mortgage Lenders, Inc., you can get quick funding based on the property’s value.
- If you’re forced to close shop or choose to sell the business, you’ll still have your commercial property, which you can lease out to generate passive income.
- You’ll have full control of the property, and thus, you can restructure it to suit your needs without having to consult a landlord.
Pros and Cons of Buying a Commercial Real Estate
| Pros | Cons |
|---|---|
| Build Equity | Down Payment |
| Rental Income | Prepayment Fees |
| Complete Control | Carry Liability Insurance |
| Capital Appreciation | You can lose capital if the value of the property declines |
| Tax Breaks |
Pros Explained
- Build Equity – If you pay fully for the property up front, you’ll own it outright. If you pay a down payment and finance the purchase through a commercial loan, your equity in that property will increase with each monthly payment. Consequently, the value of your company will also increase.
- Rental Income – You can generate additional income for your enterprise by leasing out a section of your commercial building to other businesses.
- Complete Control – Once you purchase a property, you can reconfigure it to suit your needs without having to consult a landlord. Besides, your monthly payments will be fixed, unlike rental payments, which can be hiked once your lease expires.
- Capital Appreciation – The value of your commercial property can increase over time, and you can benefit from this asset appreciation.
- Tax Breaks – When you own a property, you enjoy certain tax breaks, like depreciation on the property
Cons Explained
- You’ll have to make a down payment.
- If you take a commercial loan, you’ll have to pay certain prepayment fees.
- You’re responsible for the safety of your property’s occupants, so you’ll have to carry liability insurance.
- You can lose capital if the value of the property declines.
Why Consider Leasing a Commercial Property
Leasing may be a good option for you if:
- You don’t want to make a long-term commitment due to volatile market conditions.
- You just started your business and aren’t certain about the amount of commercial space you might need in the future.
Pros and Cons of Leasing out a Commercial Property
| Pros | Cons |
|---|---|
| You won’t have to pay for the maintenance of your commercial space. | You won’t gain equity on the property. |
| You won’t have to make a down payment, so you’ll enjoy more liquidity. | Rent payments usually exceed mortgage payments for the same property. |
| It’s easier to qualify for a lease compared to qualifying for a loan. | You can’t rent the property to get secondary income. |
| You’ll enjoy certain tax breaks. | You have limited control over the rental space. |
Bottom Line
You can see there’s no rigid answer to the question of ‘should you buy or lease your property?’. You must evaluate all the pros and cons, your business’s needs, financial stability, and your short and long-term business plan to decide which one is best.
How Fidelity Mortgage Lenders, Inc. Can Help
We help you obtain your real estate loans in California and Nevada with loans range from $50,000 to $20 million. We accommodate a variety of property loans (excluding construction and raw land). We consistently deliver loans at competitive rates and terms, and our high client satisfaction levels speak volumes about our business.
So, if you’re looking for funds or expert advice for your next deal or commercial real estate investment, give Fidelity a call today. Call Fidelity Mortgage Lenders
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