How can you help clients decide whether to lease or buy commercial property?

In my view the most critical question to ask is "does this property meet your long term vision". If you aren't committed to a minimum of 5 years in the space save your self the trouble and just lease. More importantly always remember that leverage/debt should always be used thoughtfully. You can always lease more space. I've yet to meet a borrower that said "I wish I had more debt on the books" during a period of financial difficulty.

There are many factors that helps to decide whether to lease or buy a property such as nature of the asset, definitely cost benefit analysis, life of the asset, residual value, industry standards for leasing the asset, rights and obligations etc. Intended balance sheet treatment of the asset (financial leases still appear on the balance sheet of the lessee) also determines the choice. Additionally, who are the parties involved, if the transaction is between related parties (it has more complex and restricted covenants for leases).

Depends upon some of the points mentioned below. - Nature of Business - Business Plan - expansion strategy & timelines of the same - City you operate from - Financial condition of the company

Leasing a commercial property offers flexibility, preserving capital for core operations. It provides agility to adapt to changing space requirements without long-term commitments. Operating expenses may be predictable, as maintenance costs are often included. Leasing also offers potential tax advantages. Conversely, buying provides long-term stability, potential equity appreciation, and full control over the property. The decision ultimately hinges on financial strategy and operational needs.

Giving advice without knowing the facts is dangerous. Make sure you don't present yourself as a tax expert. That said, the real issue for an individual or small company is who will deal with the maintenance, repairs and capital projects. If you are in the middle of a meeting and a tenant calls to say there is water leaking from the roof will you be the one to leave the meeting, call the roofing and clean up the mess? Yes, there are usually economic benefits but they can quickly be wiped out by time consuming property management responsibilities. Good luck!

I've seen a commercial landlord not renew a lease, forcing the owner of a successful storage business to move, then the landlord started their own storage business in the same space. When you are running a business that relies on location, the ability to control the longevity of the location is a major factor for your success. Don't just think of clauses in your lease to protect you if your business should fail... you should also have clauses in your lease that protect you if you succeed in your business! "What's the worst that can happen" should be balanced by asking "what's the best that can happen?"

The biggest disadvantage to leasing for a tenant is NOT negotiating with the end of the lease in mind. Typically the tenant is pressed for time and the urgency is upon the occupancy TODAY and the items of renewal, expansion and in some cases restoration are glossed over and or ignored. A lease includes terms for BEFORE you occupy (duties of the landlord) DURING your occupancy and AFTER your occupancy. The key to a successful lease, for both the landlord and the tenant, must take into account all phases of the lease.

It's crucial to provide a balanced perspective, so here's a concise overview of potential drawbacks to consider: 1. Control Limitations: Leasing means adhering to the landlord's rules, impacting customization and decision-making autonomy. Negotiating clear terms in the lease can help strike a balance. 2. Financial Impacts: Rent Fluctuations and Renewals: Rent increases, lease renewals, and eviction risks are inherent in leasing. Thorough market research and strategic lease negotiations can offer some predictability and financial stability. 3. Equity Limitations and Net Worth Impact: Leasing doesn't contribute to property equity. This absence can affect net worth and potential returns.

There are certain situations that make sense for leasing, but there are also financial and business-related disadvantages as well. On the financial side, while cheaper, leasing is still money you will never get back. Plus, by owning, your client will gain permanent control over the property which helps avoid unintended outcomes upon lease expiration.

Leasing a commercial property doesn't let you to monetise it for raising capital as and when needed. Your networth stays low which again brings down your capability to raise capital in future. When business is not well, monthly rent and it's increment puts an added pressure to the operation costs.

As a business owner, buying a commercial property doesn’t only represent stability but it also allows for more advantageous financing conditions . For example , in Montreal , Canada , an owner - operator as we call them , can qualify for 100% LTV loan which , as a successful business owner , is often a no brainer . Down the line, once your clients and employees get used to a specific location you won’t have to worry about a new commercial landlord purchasing the property and either raising rents or moving-in to operate their own business . This can often result in a loss of staff , clients and opportunities. Long story short , if your business can afford it and an opportunity arises , don’t be scared to pull the trigger! ;)

I could not agree more. The starting point should be to buy if you can afford it! I never met a tenant that regretted buying a building instead of leasing.

I am an ardent believer of buying a commercial property. If you have money to put in then one of the best options are to buy a good commercial property at a good location and built by a good developer. Commercial property gives you long term future income, tax benefits, asset appreciation, asset monetisation, increases your networth to raise capital for your business. If your business is managed from the same premise then at the start of the business a fixed capital can be allocated for the purchase of the property and thus you will not have to worry and pay for monthly rentals and also your operation cost gets lowered.

1. **Asset Appreciation and Income Generation:** Purchasing a commercial property provides your clients with the potential for asset appreciation. Over time, the property's value can increase, offering a valuable return on investment. Additionally, clients can generate income by leasing out unused space, creating a diversified revenue stream. 2. **Tax Benefits:** Ownership comes with notable tax advantages. Clients can benefit from depreciation deductions, mortgage interest deductions, and capital gains exclusion. Leveraging these incentives can contribute significantly to overall financial gains and optimize tax liability.

Purchasing a property may offer more advantages than leasing. For instance, if the monthly lease fee amounts to Rs 10 lakhs, it may be more financially prudent to consider purchasing the property at a favorable price. Ownership brings the benefit of potential asset appreciation, allowing you to retain the lease amount. Additionally, you can avoid annual lease increments and the restrictions that may come with leased properties, such as limited operating hours. Overall, buying a property can be a more favorable option compared to leasing.

One major risk of buying commercial real estate is the risk of market trends outside of your control. The work from home rush as a result of the COVID-19 pandemic has caused a lot of stress for owners of commercial office space. You will almost always face a higher vacancy rate when compared to residential tenants.

Purchasing a commercial property ties up substantial capital upfront, limiting liquidity. Maintenance and repair costs are the owner's responsibility, leading to unpredictable expenses. Property values can fluctuate, impacting equity. Fixed location restricts flexibility compared to leasing. Financing may involve high-interest rates. Additionally, resale can be challenging if market conditions are unfavorable. Overall, the commitment and financial risk are higher when purchasing versus renting for operating businesses.

1. High Initial Costs: Purchasing requires a significant upfront investment. 2. Responsibility for Maintenance: Owners bear the responsibility for property maintenance and repairs. 3. Market Risks: Property values can fluctuate, impacting the overall investment.

Debt is one of the large factors of any successful real estate deal. It’s tough to navigate when the market is changing every single day. Having a strong understanding of the available products is a must in whatever asset class you are investing in. Whether it’s bank debt, Fannie Mae, Freddie Mac, HUD, Bridge, CMBS, or Life Co’s, understanding what each are best for and having a team who can execute and advise you is imperative.

Since buying commercial real estate requires a great deal of cash down, many companies prefer to invest that money directly into their business/employees vs. buying a building. This is also why we are seeing the rising popularity of sale/lease backs. If a company owns their real estate, they can sign a long term lease and sell the building to an investor and not have to worry about the headache of being their own landlord.

One of the biggest questions that I think corporations should ask themselves revolves around opportunity costs. Do they care about the potential tax benefits of owning CRE or not? What is their effective costs of capital? The lens that I encourage my clients to use is if the money they’d spend to buy CRE could be used successfully within their business to scale or not. For instance, if they have a net profit margin of +30% (with occupancy costs) could they utilize their profits by reinvesting those dollars in their business at that rate of return vs a potential lower rate return on owning CRE but a potential significant upside from appreciation? These are some of the things that I help present for a full consideration.

When deciding whether to lease or buy, I help my clients evaluate the property’s potential for transformation and how that aligns with their long-term business objectives. This perspective not only aids in their current decision but also positions them for future adaptability in an ever-changing market.

Für junge und noch nicht etablierte Firmen ist die Miete von einer Gewerbeimmobilie optimal. Eine m?gliche Expansion kann besser abgefedert werden und auch eine eventuelle Aufl?sung der Firma bedeutet lediglich die Kündigung des Mietvertrags. Ist die Firma langj?hrig, etabliert und die Zukunft vermeintlich planbar, ist der Kauf einer passenden Gewerbeimmobilie sicher eine gute M?glichkeit.

1. Financial Situation: Assess the financial health and stability of your business. 2. Long-Term Plans: Consider the long-term growth and stability requirements of your business. 3. Market Conditions: Evaluate current market conditions and trends.

1. Financial Considerations 2. Long-Term Costs 3. Flexibility Needs 4. Equity and Appreciation 5. Market Conditions 6. Business Stability 7. Tax Implications 8. Opportunity Cost 9. Exit Strategy 10. Legal and Regulatory Factors By systematically assessing these factors, you can create a comprehensive comparison and assign weights based on the priorities and circumstances specific to your business.

Over the years I've enjoyed advising clients on the pros and cons of leasing and/or purchasing commercial real estate assets. In fact, right now we have a client who is going to lease with an option to purchase. There are many factors that need to be considered like the cost of capital, return on investment (ROI) expectations, tax and depreciation preferences, etc. For instance, if your business is generating a 25% return on capital invested in inventory it may not make a whole lot of sense to buy a real estate asset that is generating an 8-10% ROI. There is a lot to consider and having a data driven client advisor can make all the difference.

Any corporation should, of course, always conduct a comprehensive financial DD and NPV comparison, but I would advise exercising caution when using standardized lease vs. buy calculators. These models are typically too simplified to be universally applicable across various real estate sectors, regions, taxation regimes, etc. Currently, many operators favor flexibility and low CAPEX, often resulting in a preference for leasing.

To simplify and ensure accuracy in the comparison process, decision tools such as lease vs. buy calculators, financial statements and projections, market reports and trends, and professional advice and guidance can be utilized. These tools enable thorough analysis of data and scenarios related to leasing or buying a commercial property. They facilitate estimation of net present value, cash flow, and break-even point for both options. Additionally, they provide insights into clients' income, expenses, assets, and liabilities. Moreover, they offer up-to-date information on the supply, demand, and price of commercial properties, enabling informed decision-making.

Unless your are a professional in your market, you have to contact a trusted advisors. A good du diligence process is crucial! We are happy to help.

Aside making use of the decision tools, it is always expedient to seek the advice/opinion of professionals in the Real Estate industry and financial experts for a better guidance, forecast and understanding.

It seems like most everyone wants to invest in commercial real estate, or to own the building they occupy. However, many overlook the amount of time and continued ($$$) investment related to responsible ownership. It comes down to each decision maker evaluating the most effective use of their capital resources, and operational.

I routinely counsel clients buying commercial real estate that they will want to sell the property someday, so planning for that event is essential when owning and managing the property: track your depreciation, avoid deferred maintenance, track your capital expenditures (to raise your basis), and consider a 1031 when it comes time to cash out.

When deciding whether to lease or buy commercial property, there are several factors to consider. The first step is to break down the business needs by answering the following questions: What do you need the space for? If you are looking for a more stable option, buying commercial space can be preferable for businesses who have capital they are looking to invest. Property is a valuable asset, and one that typically appreciates over time. On the other hand, leasing affords you greater flexibility. Most people will tell you that businesses—especially SMEs and start-ups—are better off leasing, and investors are better off buying. It’s important to maintain a realistic mindset and consider all options to widen your opportunities.

When helping clients decide whether to lease or buy commercial property, I consider their finances, business growth plans, the current real estate market, legal implications, and long-term business strategy. By analyzing these factors, I provide personalized advice to help them make an informed decision that aligns with their goals. In the current rate environment, there are many clients considering the benefits and risks of sale leasebacks to monetize their real estate and it’s a careful and complex analysis

Ask your CPA what best situation you need to be in with owning vs. leasing. Some business owners love the depreciation write off of owning, while some enjoy the taxable benefit of leasing.