Lease vs. Purchase: Navigating the Nuances

As Mark Twain once wrote, ‘Buy land, they’re not making it anymore.’ It seems easy enough, right? However, current interest rates in today’s financing environment have many businesses choosing to lease commercial property without giving consideration to purchasing.

Nevertheless, purchasing a building can offer many advantages for a business that can be worthwhile. One benefit of owning a property is that over time, real estate generally appreciates in value, serving as an asset for the business. Monthly mortgage payments build equity in the property with each payment, and that equity can be leveraged for other financial needs in the future.

Another reason is stability and predictability. When you own the property, it eliminates some uncertainties associated with leasing, which can include lease expirations, terminations, and non-renewal. If you have a fixed-rate interest loan, it can also eliminate uncertainties associated with rent increases and maintain a sense of security for long-term planning. However, it is important to consider that more often than not, commercial financing has adjustable interest rates, which eliminates some of this predictability regarding payment fluctuation.

One of the greatest benefits of property ownership is that it gives the owner control to modify their space and feel confident that they are investing their money in their asset as opposed to adding value in someone else’s property. So, you don’t necessarily need to look for the perfect place when you can find a place and make it perfect. Customize your property to meet your specific needs without any lessor restrictions.

There are also tax benefits, including deductions for mortgage interest and depreciation of the property. These contribute to overall cost savings for the business and can improve the bottom line, ultimately making a difference no matter what type of economic climate we are experiencing.

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