Once your business hits its stride in terms of growth, you might decide it's time to invest in permanent office or retail space, or buy equipment instead of leasing it. Yet, you don't want to tie up too much cash in making these kinds of acquisitions. If you're deciding whether to buy or lease, here are a few advantages and disadvantages of each to consider:
- Your business credit rating and history is not examined as closely as it would be if you were purchasing.
- You are flexible. If you need more space or decide to change locations later, you don't have to sell the space or equipment.
- Rent is often a deductible expense on your taxes.
- If the market declines, you won't suffer a loss.
- Rent usually increases every year.
- You don't build equity in the property and it isn't a business asset.
- You might be forced to move if the landlord decides to sell the property or stop offering it as a rental.
- You can deduct mortgage interest and take out annual depreciation on your taxes.
- You can remodel, expand, or redesign the space based on your changing business needs.
- You can lease out the space to get income from it.
- You won't be forced to move or subject to rent increases.
- You can sell the property at a profit in a good market.
- You need to come up with a significant amount of cash for a down payment and closing costs.
- The value of your property is subject to the peaks and valleys of the commercial real estate market.
- You are responsible physically and financially for maintaining and operating the space.