One of the most important decisions expanding businesses must make is where to expand. The physical location of a new office could have as much an effect on the success of a growing business as the products or services themselves. Part of the decision in where to set down roots may depend on whether the business will rent space or purchase a building.
There are several factors that businesses could consider when deciding whether to rent as opposed to purchasing commercial real estate. This post will highlight a few.
How will cash flow be affected – Of course, leasing commercial space will take much less of a financial commitment; normally a security deposit and a month’s rent initially. However, the purchase of a building may involve much more than this, even if the business is only initially responsible for closing the loan. However, the monthly loan payments may be substantially more than a specific rent payment.
Real estate values – If the business is located in an area where property values are declining, perhaps renting would be a better option. Conversely, if the business will be located in an area where there is great potential for growth, a purchase would be the better option.
Tax savings – Indeed, monthly rental payments are deductible as business expenses. Also, a business can depreciate the property it owns each year for some tax savings. Essentially the analysis must be completed to determine what is in the business’ interests in the long term as well as the short term.
If you have additional questions regarding the purchase or lease of commercial real estate in California, an experienced attorney can help.