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Your Business: Should You Rent or Buy?

May 15, 2019

Choosing the location, price, and size of your business are just a Contractor showing carpet samples to customerfew of the many difficult choices you’ll make as a business owner. You also must decide whether to rent or buy. There are valid reasons to do either, but there are some distinct benefits to buying.

Build Equity

As your business grows, so will the equity in your building. That equity can be used to secure loans that may be needed by your business. If you own the building, it will be easier to expand and invest in energy-efficient and modern upgrades. However, you’ll only get that equity if you own the building. Otherwise, you’re building equity for your landlord.

Gain Tax Advantages

If you own your business’s building, you may be eligible for tax benefits. You could sell it and qualify for a Section 1031 deferral. You could also take tax deductions from associated costs, such as mortgage interest and property taxes. Be sure to consult your CPA to see if you qualify.

Control Occupancy Costs

Leases usually increase after a few years—an inevitable cost you can’t control. It’s also hard to know how much it will increase, which makes budgetary planning more complicated. When you own the property, however, you’re paying a mortgage, which is a stable cost (and likely lower than what you’d pay in rent). That means you can plan for the future, knowing one of the big costs in advance. This is especially useful if you plan to stay in the same location throughout the life of your business.

A common misconception is that if you buy rather than rent, you’ll have less flexibility if you decide to move your business. The truth is actually the opposite. Since you’re not tied to a fixed-term lease, you have more flexibility in choosing the timing of your move.

You’ll Have an Excellent Exit Strategy

When it’s time to sell the business, if you own the property you have a few excellent options. One is leasing it out yourself, earning an income even after you’ve sold your business. (This is also something you can do if you buy a building that has space you don’t need – keep part of it for your business and lease out a portion to help pay the mortgage.)

Another option is selling the real estate as well as the business, earning yourself a pretty penny. Most real estate properties appreciate over time, which will be a big benefit for you if you decide to sell the building at retirement.

Take Advantage of SBA Loans

You can help your business grow with an SBA loan. Though an SBA loan may still be useful if you’re renting—helping you purchase equipment or furniture, for example—you’ll have even more uses when you own the property. SBA 504 loans come with long-term fixed rates that make it easy to budget. With as little as 10% down, you can acquire or improve a building.

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