Buying Vs. Leasing Commercial Real Estate: 5 Factors To Consider

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Buying Vs. Leasing Commercial Real Estate: 5 Factors To Consider
Buying Vs. Leasing Commercial Real Estate: 5 Factors To Consider

Business owners looking for commercial property are often stuck with the dilemma of choosing between buying and leasing. The decision can become challenging as you have to consider the budget as well as various other aspects related to the acquisition and renting. A significant part of this choice is based upon the needs of the business and its future plans.

Also, you need to conduct thorough research to determine which of the two will be suited for your company to maintain its growth. So whether it is the acquisition of a storefront, a warehouse, an office or an entire commercial complex, the buyer has to take a lot of factors into consideration before going ahead.

If you too are planning to invest in a commercial property for sale in Australia, then take note of the five crucial elements that can help you choose between leasing and buying. These will assist in understanding what can be more beneficial for your organisation.

 

1.  Impact Of Buying Or Leasing Costs

 

When you purchase a commercial property, you either pay the amount upfront or take a business loan. While you are repaying the loan, the cost of the asset appreciates in value which helps to create equity in the property. The fixed instalments paid regularly keep bringing down the principal loan amount, and the value of the property keeps going up.

Also, unlike a lease, the loan instalments do not increase with time. So you will not have to worry about rent hikes. Once the loan is paid, you will have no more payments to be made. You can even rent out vacant space on your premises if you have a big commercial complex.

This additional income can work wonders in boosting the profits if you can rent it to restaurants, retail shops, etc. On the other hand, when you lease a property, you have to submit a significant amount as security deposit and monthly rent. However, this is much lower than the down payment made during the purchase process.

Also, the owner will take care of the maintenance part, and you will be saving on such expenses. Thus you will have more capital available for investment into the business.

 

2.  Location Of The Property Is A Significant Element

It is common knowledge that the location of the business is an essential aspect of getting the company noticed and trusted in the market. So when it comes to buying commercial real estate, potential buyers utilise due diligence to ensure that they find the most conducive surroundings for their venture.

The emphasis is on finding a place which will develop in a significant way over the years. Thus it must have a fast-growing population rate and new projects in the pipeline for infrastructure development. The surrounding area must have ample recreational and commercial properties that make the work environment favourable and provide high exposure to the business.

Since it is a long-term investment, you don’t have to necessarily buy an office in the most crowded commercial precinct of Sydney or Melbourne. You can choose an upcoming suburb with promising development projects. Stay focussed on finding the best location as it is one of the ten rules of commercial real estate investing.

When you are leasing a property, you have to think about the present rather than the future as it is a short-term investment. You might have to move to another place in a few years. So you have to be in clear sight of your target audience. Also, attracting the best talent needs good visibility and amenities.

An advantage of leasing is that you can get started much faster than buying, which usually takes a long time in the negotiations and set-up. There are many well-equipped facilities readily available that need minimal work and can get you up and running in a week’s time.

 

3.  Control Over The Property

As the owner of the property, you are in full control and can make expansion plans as and when required. When you make improvements to the building, it enhances the total value of the property. You will be using the office for a long time to come so you don’t have to worry about losing the money spent on renovations and upgrading of the structure.

It helps in saving a lot of money as leased spaces need to be refurbished according to the nature of the business, which incurs significant expenses. As a tenant, you do not have any rights on the property you rent. The landlord can increase the rent once in a year which can increase your running expenses and force you to move to another place.

Also, all the money spent on the improvement of the space goes to waste as you do not own the place. The owner gets the benefit of all the enhancements done to the interiors which are fixed. The only good thing is that you don’t have to pay for the repairs and maintenance, which is the responsibility of the landlord.

 

4.  Tax Benefits

The owners of commercial property in Australia have to submit a report of capital gains made on the sale of commercial real estate and pay tax on it. The capital gain gets added to assessable income and increases the tax.

Besides this, the business owners can claim tax deductions on expenses incurred due to the ownership of the property, such as interest on property loan and maintenance costs.

These deductions aid in saving money that is the priority of an entrepreneur.  The tenant of a commercial property can claim a tax deduction on the rent being paid for the business premises and GST credits if it is a part of the rent.    

 

5.  Appreciation Of Asset

With the purchase of a property, you build an asset which will increase the value of your business in the long run. You will not be paying the landlord but creating equity. There will be no lease contract guiding you or landlord dictating terms. You don’t have to worry about finding a new place every few years when the lease expires.

The cost of the land and the building will be much higher in the next 15-20 years. So if you decide to sell it, you will be making a considerable profit. As a tenant, you won’t have any fixed place, and there will be a lack of flexibility. Since you will not have an asset in the form of business premises, there will be no appreciation. You will only have to pay the increased rent every year.

 

Conclusion

Thus if you are looking for commercial real estate for sale in Australia, you must think about the consequences of both buying and leasing. The factors mentioned above will help you to make an informed decision. 

 

Author Info Sophie Barrett

Sophie Barrett is an experienced real estate marketing professional with a specialisation in commercial property market. She has a Masters degree in marketing from the esteemed Melbourne Business School and has several property management certificates to her credit. Her shrewd marketing policies and business acumen have led to the most rewarding property deals in the major capital cities of Melbourne, Sydney and Perth. She is a popular name in the real estate market and has been serving the industry for almost two decades now. CommercialProperty2Sell is proud to partner with her for some astute discussions and advice on the booming sector.  

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