Buy or Lease Your Business Space? How to Decide

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One of the first major decisions you have when starting a new business is deciding where it will be located.

When choosing a space for your business, you will inevitably be faced with the decision of whether to own or lease.

Frank McCafferty, the head of the occupier services group throughout the state of Texas for the commercial real estate firm Cassidy Turley, said many entrepreneurs are drawn to allure of ownership.

"Owning seems cheaper when you compare a monthly mortgage to a lease, it's an investment, and it grounds the business in a stronger feeling of stability," McCafferty told Business News Daily. "However, many who sign on the dotted line on a mortgage often come to wish they'd explored more options as the headaches of ownership add up."

When deciding whether to buy a property or rent one, McCafferty encourages business owners to ask themselves five questions.

• Do you envision your business growing or changing in the future? While owning a building may represent a milestone in how well the business has done, it can also end up restricting progress later on. McCafferty said if the building or store you're buying can’t support growth, owning could become more of a burden than a symbol of freedom.
• Would you ever want to be a landlord? If you decide you want to own a building or a store, and the business does outgrow it, you'll have to either sell or rent the space to someone else. McCafferty said you need to determine if both the current and foreseeable markets support the case for finding a good tenant in that particular space should it be outgrown. When determining the value of the property, you must factor in what you can expect to recover or gain in the future.
• What is the true cost of ownership? While leasing may appear to be more expensive when looking at just the monthly cost, you will need to consider that additional costs go into ownership, such as retrofitting elevator cabs, fixing a leaky roof, or replacing broken HVAC units. McCafferty advises business owners considering ownership to hire a professional to do a thorough property assessment of the building or store's conditions to uncover any hidden price tags that may be forthcoming.
• Who is going manage the space's maintenance needs? If you plan on owning, you will either need to handle the facility's care and maintenance or hire someone to do it.  When you lease a space, the building's owner typically has a property manager to oversee things such as the landscaping, keeping the building up to code, trash removal and extermination issues.
• Why is owning a space important to you? Owning represents something different for everyone. McCafferty said whether it's a symbol of independence, reflection of your business philosophy or an emotional attraction, the reasons owning property is a priority for you should be laid out before big decisions are made. There are no right or wrong answers to this question, but understanding what your true reasoning is will help make the best choice.

"Asking these five questions will ensure you enter either ownership or a lease with confidence," McCafferty said. "Buying can be a great decision and investment in the future, but only when it's considered from every angle."