At some point, your company is likely going to have to decide whether it makes more sense to lease a property or building or to buy a piece of real estate. If the owner of the building you’ve been leasing decides to raise the rent at the end of the lease term by a considerable amount, buying another property might seem like the better choice, because at least the monthly mortgage cost will remain fixed and your company would be building equity in the property. But, there are other things to think about, beyond the cost of the lease versus the cost of a mortgage.
Buying real estate isn’t something your company wants to rush into. It is worth it to look at a number of factors first, and to weigh the pros and cons of those factors, before you decide to keep renting or to purchase property.
You Like the Location
One of the biggest considerations when deciding if it is the right time to buy is the location of the property. Location matters for several reasons. From a practical standpoint, if you are going to buy real estate, you want the property to be in an area that is easy for your customers and vendors to get to. If the choice is to buy a store front in an out-of-the-way location that is difficult to find or to continue to rent a store in a busy mall, the store in the mall will most likely win out, even if it has a higher monthly cost.
The ease of finding and getting to the property is just thing to think about. You also want to consider how accessible the location is. If you live in an area where many people drive instead of take public transit, is there a fair amount of parking near the property? Will people have to pay to park on the street or in a lot that is a block or further from the building or is there a parking lot on site?
Finally, you want to think about your company’s investment in the neighborhood. Can you see your business growing and thriving in the area and continuing to be there in the years to come? Or, is your ultimate goal for your business to move to a different part of the town or city you’re located in or even to eventually move out of state? If you aren’t planning on staying in the same spot for several years, buying property might not make as much sense for your company as continuing to lease a property.
You Have the Liquidity
While buying business property can cost you less in the long run, and can help your company when the value of the property increases, it is usually considerably more costly upfront than renting. Your business will most likely need to put a significant amount of cash down before you can get a mortgage. It’s useful to examine your company’s finances to make sure that you have the liquid assets needed to make a down payment on the property and that tying that cash into real estate won’t make it challenging for your company to reach other goals or won’t negatively impact your business if you run into cash flow issues a few months or years down the road.
You Have the Right Team
If you are considering buying real estate for your company or wondering if it is the right time to buy, it helps to have a knowledgeable team on your side. A virtual CFO can help you better understand your company’s finances, for example, and help you determine if buying is the best move to make financially. A real estate agent or broker can help you see what properties are available and whether they are within your company’s budget or otherwise meet your company’s needs.
New Direction Capital can help you put together a plan for your company’s future, whether that plan includes purchasing real estate or not. To learn more about how we can help your business with its strategies and plans, contact us today.