By: Roxanna Collins
Over the course of my 30-year career, I can say with certainty that commercial real estate is one of the most dynamic industries in the world. Being a broker requires deft navigation and awareness of ever-changing market trends. Additionally, it’s important to have a solid understanding of how certain conditions will influence a deal, which vary from client to client.
So how do brokers answer the age-old question that determines the fate of an entire commercial real estate transaction – “should I buy or rent?”
Well, now is a great time to buy property instead of renting it. If you are a business owner looking for a place to “set up shop” for years to come, it is far more advantageous to purchase property and utilize its space for your business as opposed to renting from a landlord.
• Interest rates are low. If you mortgage a property, current interest rates are at four percent. If you’re renting, odds are that your landlord is seeking an eight percent return on his or her investment, passing along the costs (plus more!) to you. The landlord is an investor in their own property and needs to generate an income from it.
• Land prices are up, which results in higher rents. Lack of inventory makes what is currently available more expensive for renters.
• SBA loans with zero percent interest are available for small business owners to purchase property. Additionally, SBA loans offer 100 percent financing for qualified buyers, including financeable closing costs and financing for any improvement costs.
• Tax benefits on ownership include write-offs of mortgage interest, taxes, operating cost and closing costs plus depreciation. If you are renting, real estate taxes, insurance and common area maintenance fees are “expenses” for the landlord. These expenses are billed to you and controlled by the owner, who can get a tax deduction on them.
In the long run, it may cost you less to own a property rather than leasing it, and owning comes with the added benefit of an appreciating asset.
If you plan to stay in business for 10 or more years, it makes sense to invest in yourself and purchase property. In doing so, you’re not paying sales tax or upfront fees like first month’s rent, last month’s rent, and one month’s rent as a security deposit.
I once represented an individual who owned a business in the marine industry for more than 15 years. Because she planned on staying in business for another 15 years, I advised her to look into buying property rather than renting. She met with her lender and accountant and was able to purchase property for less money upfront than what it would have cost to renew her lease.
Examples of properties that might be more cost-effective to purchase than rent over time, which are also currently on the market, include:
Many people who rent space from a landlord continue to do so because they aren’t aware of the options or possibilities for owning property. Just by meeting with a lender and accountant, you can determine your eligibility and explore an avenue for ownership. If you are a business owner who is in it for the long haul, contact Berger Commercial Realty about how we can assist.