Law Advice

Is it better for me to LEASE or PURCHASE my Austin office or industrial Space? That is the question most companies eventually ask themselves. Since either scenario greatly impacts your bottom line, it’s very important to carefully evaluate your current and future business space needs, your available cash on hand and investment objectives,  and the advantages/disadvantages leasing and purchasing  before pulling the trigger.

Advantages of Owning

Debt Reduction and Equity Build-up – With each mortgage payment owners get to enjoy watching the debit go down while at the same time the value of their property historically appreciates. Control – Within legal limits, owners can operate the building as they see fit and if leasing space can choose who comes and who goes. Income – If they lease space to other companies owners can use the rent money to pay the mortgage down or use for other outside investments. Tax Advantages – Owners can generally reduce the annual tax liability with interest and cost recovery deductions

Disadvantages of Owning

Flexibility – It typically takes about 5 or more years for a commercial property to appreciate. If sold before this time any accumulated appreciation may be offset by the cost of purchasing and selling the property. Companies must carefully evaluate their business objective and/or space needs before making the decision to purchase. Cash out of Pocket – Most commercial lenders will require a down payment of at least 20-30% of the purchase price at closing. This will tie up capital that could have been invested in the company or market. Management – Commercial property management can absorb a lot of manpower and money that would normally be used to focus and invest in the company’s primary business. Managing issues such as compliance with local building codes, health and safety issues, contractor management, building repairs and maintenance, etc. can eat up time and money. Risks – In addition to being obligated to pay a mortgage, owners must prepare and account for market fluctuations, unforeseen capital expenditures, building obsolescence, etc

Bottom Line:  If your company is growing and you think you will need additional space later on and you would rather invest cash into your business rather than Austin Real  Estate then purchasing may not be the best option for you.  However, if you’re not adding head count and have the 20% to 30% cash necessary for a down payment then purchasing commercial space might be a good option for your business.