How to Decide if You Should Buy, Build or Lease Commercial Real Estate
April 26, 2022
When it comes to commercial real estate, there are a lot of factors to consider: should you buy, build, or lease? This can be a tough decision, but we're here to help make it a little bit easier. In this post, we'll take a look at the pros and cons of each option so that you can make the decision that is best for your business, whether you are just starting out or looking to expand your existing business.
If you're looking for a long-term investment or a property that you can really make your own, buying is likely the best option. When you buy a property, you're paying down the mortgage over time and building equity. With building costs at historical highs, buying an existing property can be a very attractive alternative to building.
There are several variables to consider, the extent of remodel required to make the existing space work for your business and what kind of property you want to purchase. Do you want to be the sole tenant in the building or would your rather purchase a building larger than you need and rent the remaining space to tenants. This option will often allow a large majority of your mortgage to be paid with the rent from your tenants and allow space for future expansion of your business. It can also result in favorable tax breaks through depreciation. To illustrate the difference between building and buying, we have several office building and condos for sale in the Edmond market for between $140-$180/SF while building costs are starting at around $225/SF in the area. See Edmond Listings
Leasing is often the best option for businesses that are just starting out or businesses that don't have a lot of extra cash on hand. Leasing also allows you to take advantage more location choices. Also, when you lease, depending on the type of lease, the landlord will often bear the cost of many repairs and maintenance items. Leases are also generally shorter than mortgages, so you'll have the flexibility to move if your business needs change. However, lease rates have been on the rise in recent years, and landlords often have a lot of control over what you can do with the property. Lease terms can also be complex, so it's important that you understand what your are signing.
If you build, you will have more control over the end product. You'll be able to design it specifically for your needs and wants, and you won't have to worry about a landlord telling you what you can or can't do. Building also gives you the opportunity to create equity in the property; as the value of the property grows so does your bottom line. However, building comes with a high up-front cost, extended time lines and you'll be responsible for all maintenance and repairs. While interest rates are still incredibly low, they are on the rise, coupled with the rising cost of construction material and land it may make the decision to build both cost prohibitive and limit your location choices.
Making the decision to buy, build or lease commercial real estate is a big factor in the success of your business. Ultimately, the best option for your business will depend on a variety of factors. Fleske Commercial Group would love to help you explore your options to rent, buy or build. Our Current Listings