When starting a business, there are many things to consider, especially if you plan to have a brick and mortar location. Where you set up shop matters — and we don’t just mean in a geographical sense. Besides choosing a physical location, you also have to consider if leasing, buying, or building a commercial property is right for you and your business.
Should You Lease, Buy, or Build?
While there are pros and cons of all three, the decision depends on several factors. “The question goes back to your business plan and accountant. Depending on how your accounting is set up, you have to determine if capital expenditures, among other items, are better than operating expenses that come from leasing. If growth and expansion are long term plans, purchasing a property that can accommodate future goals may be the way to go,” explains Dave Johnson, a commercial real estate broker and owner of ORB Real Estate.
If you’re in the startup phase or simply aren’t ready to commit to something more permanent, leasing may be a better option. Some of the advantages include:
Flexibility: Securing a lease is often easier than qualifying for a commercial real estate loan and can provide more options when choosing a location.
Fixed Monthly Cost: With the landlord covering most major repairs and upkeep, the rent generally stays the same, and you’ll know exactly what you’ll pay each month.
Liquidity: While there are initial fees, leasing requires significantly less cash upfront and keeps more funds at your disposal.
Tax Breaks: Unlike a mortgage, you can deduct the entire lease payment. You can also deduct the cost of things like property insurance, utilities, and maintenance.
Benefits aside, there are some key factors to be aware of when renting commercial space, such as calculating rent amounts, types of leases, and best practices to follow.
How to Calculate Rent on a Commercial Property
Commercial rental amounts are determined according to fair market value, which is based on “comparable leases of comparable space.” Rent is then calculated by square footage and presented as either an annual or monthly rate, like the examples below.
Annual Quote: Let’s say a 1,500 square fo