Buying Pros and Cons
When you consider buying commercial property, you need to consider the benefits and drawbacks for your business. The economic environment, tax consequences and geographic location are the major considerations that effect your decision no matter what.
Pros
- The financing cost may be comparable to cost of renting
- After making payments over the life of the loan, you own an asset instead of just a rent expense deduction.
- You can choose to build-out the building as you see fit and perhaps expand the building as your company grows. The limitations will be based on the zoning restrictions.
- When the property appreciates over time you may take the profit when you sell.
- You could lease any extra space available within the building and supplement your income.
- If you choose to move, sell the business or close the business, you are not bound by rental terms and agreements.
Cons
- The financial risk and commitment is greater than renting.
- Capital used for down payments on the building will be tied up and unavailable to the business.
- Your cash flow could be limited if you commit to large financing payments.
- If the property depreciates you go to sell you would lose capital upon selling the property.
- There's risk of repossession of the building should you fail to make payments.
- Maintenance of the property is entirely at your expense.
- As the owner, you are responsible for the safety of the building and complying with city zoning regulations.
As you can see, there are many advantages to owning your own property, but those advantages must be carefully weighed against the disadvantages. Each company and owner must complete a cost analysis and ultimately let the numbers guide the decision.
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