Apr 2, 2015 Blogs Office Space

Is it Better to Buy or Lease Your Next Commercial Property

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Is It Better To Buy or Lease Your Next Commercial Property?

There are times when your business is thriving, you need increased office space to cope with your prosperity, and you find yourself on the threshold of taking a decision on whether you would like to buy or lease a property. “Is It Better To Buy or Lease Your Next Commercial Property?” is a question that will haunt you fervently at these times. This is a question that solicits serious thought and consideration and a clear perception of the pros and cons, and a systematic breakdown of the calculation of the costs of a buying versus leasing decision. Sometimes, a clear decision may not emerge, but when you consider your special needs, including the implication of specific elements of the business and the financial, tax connotations, a clearer picture will start to emerge, and with it,  the suggestion of a right decision. An option that will provide you with the required space at the least net cost would be an advantage. Most people seem to have it fixed in their mind that leasing is cheaper than buying, but it need not always be so.

The Bottom Line

As a thumb rule, you can consider that buying is a cheaper option, if you plan to stay in the new premises for over 7 years. If, however, you plan to stay less than 7 years, leasing would be a better proposition. Please remember though, that, while taking a decision to buy or lease, besides the cost factor, you would do well to consider the following additional aspects.

  • Can you block the funds required for the upfront mortgage for the buying option
  • Assuming you can afford it, would the money have brought you better returns, invested elsewhere
  • Would you outgrow the space requirements, and have to move again
  • Consider the hassles of property maintenance

Please read below a summary of the advantages and the disadvantages of both buying and leasing your next commercial property in India

Advantages of buying property

Fixed Costs

A long term fixed mortgage provides the stability of a fixed cost.

Tax and Interest

A property owner can avail several tax deductions and interests in the property and mortgage taxes, and depreciation benefits where applicable.

Immovable Guarantee

Your property can stand you in good stead as a guarantee for business loans

The Financing Pattern

Using a mortgage loan to finance your purchase renders it in the same league as a monthly lease

Earn While You Own

You can generate additional income by sub-letting unused spaces for lease

Property Investment Business

If you have bought your commercial property, for example, in a fast developing location in Bangalore, you can consider it as a property investment and sell it for a profit when the land value appreciates

More control

Owning your own premises, gives you the freedom you want, and releases you from the restrictions that leases impose on you, and allows you to ponder, “Is It Better To Buy or Lease Your Next Commercial Property?

Disadvantages in the buying option include a degree of uncertainty of the business continuity at a particular owned space, thereby, perhaps, restricting the tenure there. Premature selling at a lower price may also be a liability and induce a capital loss, and the upfront capital invested by you may deny you several opportunities for business growth.

Leasing Advantages

Here are some of the advantages of leasing office space

Negotiate Your Lease Terms Properly

Before you sign your lease papers, make sure everything is clear, including how a rent review is done. Make sure that you are responsible only for the maintenance of the insides of the building and that the responsibility for the outside of the building rests clearly on the landlord. You are entitled to transact with transparent terms and conditions.

A Prime Location Does Wonders for Your Business

You enjoy greater flexibility in selecting your favorite business location, with several properties on offer that can enhance your business as well as growth. But for a periodical review of the lease conditions, you are not affected by the rising interest rates and statutory increase in government levies.

Frees Your Capital For Business

The money that you would lock up in a buying option may total about 30 % of the cost, while, in a lease, the amount is negligible and can be used in business. Even though it may entail you a premium to obtain a lease in certain locations, the benefits will adequately overshadow  the cost of the premium paid.

Preferably, use a broker to negotiate the lease, as he can, not only show you several premises, but also, advise you correctly, and end up saving your money.

More Time to Work

With no hassles of maintenance, taxes and other formalities, a lease provides you with more time on your hands to focus on your business.

Offers You the Option to Move Easily

If your business has picked up, you can make a split decision to move in search of a more convenient premise without the restraints that owned premises impose on you.

Leasing is only a short-term Commitment

A lease does not bind you for life. You have all the flexibility to pack up and move at the end of the lease period. As such, it does not pose a risk of a long time commitment

Consider all these options before deciding, “Is It Better To Buy or Lease Your Next Commercial Property?”

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