Should You Lease a Building for Your Business or Purchase it Outright?

Once your business reaches a certain point, it may be time to make a decision to move from a temporary location into a more permanent set up. Additionally, certain financial and logistic factors might make owning your own facility a better choice. Whether you are just starting out with a brand new business or if this is one of many endeavors you’ve invested in, making the decision between renting and buying a building is something that must be taken seriously. 

Here are a few important factors to consider before making your choice. 

What is the Commercial Market like in Your Chosen Area?

First, make sure that you understand the market in the area you’re considering buying into. Start by asking yourself some questions:

1. Is your business type geographically limited and in demand in this particular area? If not, you run the risk of losing money due to lack of clients or customers.
2. If your business isn’t geographically limited, does the area have your shipping or other infrastructure needs in place? 
3. Will it be easy to hire and retain the types of employees you need?  
4. Is the type of commercial space that you are considering in-demand? Are there large amounts of vacant square footage available?

Look closely at the available data. Speak to others who can provide you with information about the area from the past 10 years. This will show you how the area’s grown and help you understand what you can expect as a business owner.  While looking for answers to these and other questions, good sources of information for your research can include:

Real Estate Agents: Both commercial and residential real estate agents should be able to tell you if an area is expanding or contracting, in both population and the industries that serve and employ the local residents. 

Other Local Business Owners: Do they own due to high rents, strong appreciation, and tax savings, or do they rent due to low prices per square foot, and high maintenance or tax costs? Do they struggle to find the local staff that they need, or are jobs easily filled?

Your Accountant: Buying the building that houses your business comes with extra expenses, as well as potential tax savings. Renting comes with a similar cost/benefit divide. Knowing which is the best for you in both the short and long term is a complex question that requires expert input. 

The Municipality: Does the city, county, and state you are considering buying your building in have regulations, building codes, zoning rules, or required permits that might hinder you? How about incentives or grants that may help you?

Researching the commercial real estate market in your chosen area has many factors, but it’s worth it to make sure that investing in a building for the long term is the right choice, versus the potential freedom and flexibility of renting on a shorter lease. 

Do You Have the Necessary Funds to Pay for the Building?

When you are considering buying of a commercial building, having enough capital saved for a down payment, as well as a reserve for monthly mortgage payments, taxes, insurance, and maintenance  is necessary. If you do not have enough cash to purchase the building, or if the total of the down payment and closing costs would be too much for your business currently, the decision to purchase a building should be put on hold until the business is in a better financial situation. 

What Will You Pay In Operating Expenses?

It doesn’t matter what type of building you purchase, it will come with monthly, yearly and surprise expenses. Considering the operating expenses of your business needs to play a large part in your property search and decision . Here are a few things to consider in your budgeting:

• Monthly utility costs
• Maintenance costs including exterior services like snow removal
• Equipment leases
• Safety equipment and required features
• Advertising including exterior signage updates 
• Insurance that covers the building and your liability, not just your personal property 
• Taxes
• Payroll additions, such as maintenance and cleaning staff 

Some of these costs, such as taxes and utility costs, can be estimated by asking the previous owner or your real estate agent. If you are used to renting, you might not have all of these items in your current operating budget. Don’t forget to add these expenses into your monthly costs when budgeting for your new building. 

What Will Your Repair Costs Be?

Unexpected repairs are often a problem that occurs once the property is already purchased. You may believe that you can make repairs yourself. However, maintaining a commercial building in a four season city like Milwaukee or Madison takes a certain level of expertise. You may need to hire extra staff or contract with a maintenance company. 

 It’s also important to consider the types of repairs that are necessary in the building as you consider your options. For example, replacing a roof on a building with a crumbling foundation will not provide a return on investment. It may be more cost effective to purchase a building in better shape then spending money on repairs. Partnering with an experienced commercial building inspector early in your search is recommended. 

What Can You Do if Repairs Are Necessary?

If you do purchase a building that requires many repairs, or experiences unexpected damage, having the right company on your side is necessary. Remember, as the building owner, you are now responsible for handling anything that may happen. There is no more calling the landlord to clean up after an unexpected flood, electrical fire, or messy mountain of Wisconsin winter storm damage.  At A&J Property Restoration, we have a team that specializes in restoring commercial properties around the Madison and Milwaukee areas.

If your building suffers from water damage, fire damage, mold remediation, or other restoration needs, A&J Property Restoration can handle the job and get your business back up and running as quickly as possible. We know you cannot afford to have downtime, and we make your business our priority. 

Visit our website for more information on how we can help you with your property management needs and commercial building repairs, and call us today to schedule your estimate.