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Commercial Leasing versus Buying

Posted on: November 7, 2015

Businesses in Florida need an appropriate space in which to function, which is the main reason why business owners buy or lease commercial real estate. Buying a commercial property gives the business owner much more control over the property than leasing, but buying is usually much more expensive upfront and riskier.

Many business owners prefer leasing commercial real estate, but even leasing is not without several significant risks. There are several pros and cons to each option, and meeting with a Florida commercial leasing attorney is recommended if you need help deciding between the two.

Consider buying you plan on staying in the same location for more than 7 years

It can be difficult to forecast far into the future, but if you plan on staying at the same location for more than 7 years, you should strongly consider buying. The long term cost of buying your location will usually be much lower than leasing the property for 7 years or longer. If you plan on staying in the location for under 7 years, it is usually less expensive to lease the location.

Buying a commercial property comes with several requirements

Even if you decide to stay in your location for 7 years or more, there are several other requirements to buying that might discourage you. For example, you will have to pay significantly more money upfront to buy your location due to the 20 to 30% down payment that is normally required.

The down payment is a significant amount of cash that you could invest in your business. That money can go a long way in helping your business grow by purchasing advertising, capital equipment, or other business needs. There is a significant opportunity cost to tying up your cash in the down payment that must be considered, even though you should get that cash back once you sell the building.

Leases require significantly less money upfront

Landlords will typically require just one month’s rent upfront as a security deposit, which ends up being a few thousand dollars in most cases. Other upfront costs for a lease can include broker fees, pre-lease inspections, and fees to hire a Fort Lauderdale commercial real estate attorney to review the lease or negotiate the terms.

Still, all of these fees and costs are almost always significantly less than the 20 to 30% down payment that you would normally need for a commercial real estate mortgage. In general, it takes more to justify buying your business’s location instead of leasing it, but buying can certainly make sense in many circumstances as well.

If you are debating leasing versus buying or if you have any questions about commercial real estate, contact Mark Schecter at Schecter Law today by calling 954-779-7009.