Leasing or Buying Commercial Real Estate, What’s Best for Your Business?

By June 20, 2019 News
CHI Blog

Leasing or Buying Commercial Real Estate, What’s Best for Your Business?

Are you looking to obtain a commercial property in Toronto? One of the most important questions you will ask is whether you should you buy or lease your new space. The answer to that question isn’t simple either.

There are many factors that you will need to consider when looking at a commercial property for lease or sale in Toronto. Buying and leasing both have their own unique advantages and disadvantages.

So, how do you determine what’s best for you? CHI Real Estate has developed this brief guide to help make that choice easier for you.

Should I Buy?

Buying commercial real estate is a commitment. When you purchase a property, you own it entirely. That means paying its property taxes, repair and maintenance costs, and any other fees associated with owning it. While this approach can save you money in the long-term, it can hurt your business too.

Questions to Consider When Buying

  • Is location important to you? If you find the perfect location, it may be worth buying it. The ideal location should be so beneficial to your business that it makes buying it a logical choice.
  • Do you care about the equity side of the equation? Commercial real estate tends to appreciate over time. While the market does heat and cool, the overall trend is upward. Purchasing a commercial property will let you benefit from that appreciation and provide you with additional equity in the future.
  • Are you spending a lot on improvements at your current location? Some leases require you to finance your property improvements. However, leases can end, and any upgrades you make to a location will be lost. If you’re investing too much into leases properties, buying is often the right choice.
  • Do you want to answer to a landlord? Any commercial real estate for lease in Toronto will include a landlord. Ownership is the easiest way to skip dealing with a landlord. This also provides you with the flexibility to modify the property.
  • Is your company growing rapidly? Leases have fixed terms and can lock you into a space. If your company is growing fast, you may need a space that can accommodate that future growth. In this scenario, buying is likely the best choice.
  • Can you survive rising interest rates? Interest rates are at historic lows over the last decade. They’ll inevitably rise as the economy starts to cool off, and the cost of debt increases. And when they do go up, you will have to make larger payments on your loan, which could impact the survivability of your business.
  • Do you have enough cash flow to justify buying? Your business needs to have the resources to purchase commercial real estate. You need to ensure that you have the necessary cash flow to make loan payments, pay property taxes, and cover repair and maintenance costs.
  • How will you approach due diligence? Ownership comes with a whole host of potential issues. Your property will need an inspection, insurance, and may require additional protection to prevent lawsuits.

Buying is an excellent option if your company is looking to expand, has the cash flows, and understands what it takes to be your own landlord. This option is also a form of investing and allows you to benefit from asset appreciation when the market rises.

Should I Lease?

Leasing provides your business with a lot of flexibility that buying doesn’t. Demand for commercial real estate for lease in the GTA at an all-time high. Similar to buying, there are many things you’ll want to consider before signing a lease.

Questions to Consider When Leasing

  • Are you short on working capital? Leasing doesn’t require as much upfront capital as buying does. This makes it a better choice for businesses that are short on working capital. After all, commercial properties typically require a 20% down payment. Coming up with a downpayment is challenging, especially with real estate prices in the GTA so high.
  • Is your business seasonal, or unstable? Defaulting on a lease is bad, but defaulting on a mortgage is financially crippling. Sometimes your business may experience slow periods or seasonal shortages. If the future is unpredictable for your business, a lease is likely your best option.
  • Do you value flexibility? Commercial real estate for lease in Toronto is more flexible than purchased property. You may not know how big your company is going to grow over the short-term. Leasing is usually the better option when the future of your business is unclear.
  • Does the idea of owning stress you out? There are many things to consider when you own a property. You have to pay property taxes, insurance, repairs and maintenance, and deal with tenants if you rent space out. If you’d instead focus solely on your business, leasing is probably the best choice for you.
  • Do you want to stay at your space long-term? Leases have specific terms and conditions. Landlords can choose not to allow you to renew your lease if they want. This is one of the most significant risks associated with leasing.
  • Do you need to renovate your space? If you’re looking for commercial property for lease in Toronto, make sure your landlord has permitted you to renovate. Some landlords may restrict you from renovating a space to better suit your needs.
  • Do you need parking? This option may seem small, but parking in Toronto is scarce. When leasing, determine whether your contract includes parking spaces for your employees and customers.

Leasing is ideal for businesses that have a lot of uncertainty. This option provides you with additional flexibility but can decrease your autonomy when it comes to commercial real estate in the GTA.

Not Sure What’s the Best Choice?

CHI Real Estate is here to help you make the best choice when it comes to buying and leasing commercial real estate in Toronto and the GTA.

We can help you assess your needs, set a budget, and find the best commercial property for your business. Contact us today to see why our clients love working with us.

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