Purchase or Lease?
Does it make sense for me to purchase or lease?
This is a common question for many business owners and managers.
The answer is not simple. Making the correct decision about whether to purchase or lease can make or break your business. For some paying rent every month is like throwing money away. Others need all their capital to continue to fund their operations and ownership of their property. Purchasing can take those precious resources away from your operations.
Most companies these days purchasing real estate are either very large or very small. For the large corporation, a corporate headquarters provides a national platform from which to operate. These owners purchase large amounts of land and construct large elaborate powerful facilities. Owning the property gives them the ability to control their corporate image through architecture and design facilities that are custom tailored to their specific needs a vision. Examples of this would be EDS, JCPenny’s, Frito Lay, Microsoft, At&T and others.
On the other side many small professional services companies see benefits of ownership. Often time you see doctors and dentists that purchase a small medical professional building to operate their practice from. Many times a well established law firm can see some benefit from owning. These companies have some common traits. They are privately held by one or a small partnership. They have a fixed need for space because it is just one or two professionals and their staff and their need for that fixed space requires a large expenditure for finish out. Finally, they are often ingrained in their niche or neighborhood and plan to be there for an extended period of time.
Another type of organization that often purchases are non-profits. These do not benefit from the expense of rent because of their non-profit status. For these companies paying rent is not efficient. Also, often times these facilities are donated to them.
Leasing is the most common occupancy alternative for most companies needing office space today. There are several reasons for this. First, the use of millions of dollars for real estate is not the best use of funds. Most companies can make a better return on their dollars spent by using those dollars toward their core business. Borrowing money to purchase office space can expose your business to additional risk.
At first, you may see cost savings because the mortgage payment is less than rent. Most commercial real estate loans however require refinancing every 5 to 7 years. What happens if your company’s credit deteriorates over time and when it comes time to refinance, your rates go up. Also, with the recent reduction in availability of credit world wide, many commercial real estate owners can not find a place for their loan. In this instance, they are forced with paying off the loan or having it go into foreclosure.
Another reason to lease has serious balance sheet implications. Public companies are compared and evaluated based on ratios. These ratios, compared to other companies in their industry can determine how the market views them. By purchasing your commercial real estate, you add long-term assets and potentially long-term debt to your balance sheet that your competitors do not have because they lease. On the financial statements a lease is only an expense on the income statement, but the lease obligation remains a comment in the footnotes. Purchasing in this circumstance can put you at a competitive disadvantage to your market. Additionally, the business climate today can be volatile. Companies expand and contract constantly. When you purchase a building you are limiting your company’s flexibility to react to these changes. Often it is the quick nimble companies that succeed.
Unlike residential properties, commercial properties are frequently purchased by partners or corporations, and are usually intended to be leased or rented out to a third party. Successful commercial real estate selling requires knowledge of the market, good timing, a competent real estate broker. These complications, along with the much higher price tag of commercial real estate, make this a more challenging transaction than residential sales. If you own your facility Dallas Office Space for Lease can help you sell your property in this ever-changing real estate market.
Making the correct decision about whether to purchase or lease can make or break your business. For some paying rent every month is like throwing money away. Others need all their capital to continue to fund their operations and ownership of their property.