Lease or Buy? Deciding What’s Best for Your Business

I used to work as an executive assistant and would help CEOs navigate the leasing and buying process. Even the most critical-thinking people I've ever met still struggle with this decision, so rest assured, if you're having a hard time, you are not alone! Finding a property and deciding whether to lease or buy takes a lot of work. We need to align your company's goals, budget, and long-term ambitions. With that said, we have put our heads together to create this breakdown to help you make this challenging decision.

The Benefits of Leasing Commercial Property

Leasing your office space provides a good amount of flexibility. If your business is in a growth phase or if you are in an industry where market conditions can be unpredictable, that flexibility can be really valuable. Listed below are a few more advantages of leasing.

Lower Initial Costs

Leasing typically requires a smaller upfront investment compared to buying. You'll likely pay a deposit and the first few months' rent rather than a significant down payment or closing costs.

Example: One of the executives I supported was launching a startup. Leasing allowed them to save capital for marketing and hiring instead of tying it up in property ownership.

Greater Flexibility

A lease allows businesses to adapt quickly to changes. Moving is much simpler if your team outgrows the space or you need to relocate to a new market.

Tip: Look for leases with renewal options or clauses that allow you to scale up to larger spaces within the same property.

Fewer Responsibilities

Maintenance, repairs, and property management often fall under the landlord's responsibilities, saving you time and money.

Drawbacks of Leasing

• No Equity: Lease payments don't build equity, meaning you won't have a long-term asset to show for your investment.
• Rent Increases: Many leases include annual rent escalations, which can strain budgets over time.

The Benefits of Buying Commercial Property

Buying a property offers stability and long-term financial advantages, making it an excellent option for businesses with clear, established goals.

Building Equity

Ownership allows you to build equity over time. Instead of paying rent, your monthly payments contribute to owning an asset that could appreciate in value.

Example: One executive I worked with opted to buy a building for their growing company. Years later, they sold it for a significant profit, funding their next venture.

Fixed Costs

With a fixed-rate mortgage, your monthly payments remain predictable, unlike fluctuating rent prices.

Freedom to Customize

Ownership gives you complete control over the property. You can renovate, expand, or redesign to meet your business's needs without seeking landlord approval.

Drawbacks of Buying

• Higher Upfront Costs: Down payments, closing fees, and ongoing maintenance expenses can strain cash flow.
• Less Flexibility: If your business needs change, selling or leasing out the property can take time and effort.
• Responsibilities: Maintenance, repairs, and compliance with local regulations become your responsibility.

Key Factors to Consider

Financial Health

• Do you have the capital for a down payment?
• Can your cash flow handle the costs of ownership or long-term leasing?

Growth Potential

• Will your business expand in the next few years?
• Do you need flexibility to scale or relocate?

Long-Term Goals

• Are you looking for stability and investment opportunities?
• Or is short-term flexibility more important?

A Balanced Approach

Sometimes, a hybrid approach works best. For example:

• Lease Now, Buy Later: Start with a lease to establish your business in a market before committing to ownership.
• Buy and Lease Out: Purchase a property larger than your needs and lease unused portions to offset costs.

Final Thoughts: Tailor the Decision to Your Business

Leasing and buying both have their merits, but the right choice depends on your business's unique circumstances. Seeing how different strategies played out for the executives I supported, there was no one-size-fits-all solution. Think critically about your financial situation, growth trajectory, and long-term goals. If you're still unsure, partnering with a commercial real estate expert like Pinplum can provide valuable insights and guidance to help you make the best decision for your business's future.

After all, whether you lease or buy, the ultimate goal is to secure a space that supports your vision and sets your business up for success.