Buying vs. Leasing a Commercial Property (Pros & Cons)

When your company
decides it's time to search for a commercial space,
our clients often ask, is it better for them to lease or buy? While each transaction is unique, there are some key
advantages to both owning and leasing your property
that may help you decide which is right for you. Hi guys, my name is Jon Wheless, a principal at AQUILA Commercial on our tenant representation team. And I've helped numerous clients decide between purchasing or
leasing their office space. In this video, I'll explain
the three main benefits to either leasing or
owning your office space. (rock guitar music) (light-hearted guitar music) One of the biggest benefits
of leasing your space is the flexibility that it provides. In a lease, you can
negotiate expansion options, termination options,
and subletting rights. So that as your business changes, your space can easily as well. The second benefit of leasing your space is the financial flexibility
that it provides. A lease is almost always going
to be less capital intensive than purchasing a building
because you're not having to put down a significant down payment, which can be anywhere from 10
to 40% of the purchase price.

Additionally, depending on
the credit of your company, a landlord is almost
always going to provide you tenant improvement dollars
to build out your space how you want it, whereas in a purchase, you're gonna be paying for all of those improvements yourself. The third benefit of leasing
is that the landlord is managing all of the repairs and
maintenance to the building. When you own your own
building, you're responsible for any issues that may
arise on the building. While in a lease scenario,
you are still paying for those costs, through
your operating expenses, the landlord is managing
that entire process, and so that, again, you can
focus on your core business.

(light-hearted guitar music) The first benefit of
owning your real estate is the ability to build equity. When you purchase a building,
you're almost always taking out a mortgage, just
like you would your house, and you're paying monthly
payments to pay down that dept and, in turn, building equity. Often times, when that
equity builds up enough, you can then use that as collateral to help grow your business if you need to. The second benefit of
owning your real estate is a fixed mortgage. In a lease scenario,
your base rent is subject to the market and market conditions. If the market has increased significantly since you last signed your
lease, you're gonna be subject to a substantial increase in rent. We have some clients who are
rolling out of long-term leases and are seeing increases
in their base rent alone, of upwards of 40%, whereas in a mortgage, while you still are subject to changes in operating expenses and taxes, the effective base rent will not change because your mortgage is gonna be the same for the duration of your loan term.

The third benefit of
owning your real estate are the tax advantages. You can also receive
additional tax deductions in the form of mortgage interest payments, and taxes, and other
accounting line items. Finally, if you're a non-profit, owning your building can
be extremely beneficial because you're not subject
to the property taxes on that building. Whereas, if you are leasing your space through a third party landlord,
you would be paying taxes through the operating expense
component of your rent. For more information about
leasing or purchasing your real-estate in Austin, Texas, make sure you check out
the AQUILA learning center. And remember, no one knows
Austin better than AQUILA. (rock guitar music).

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