Perhaps your industrial entity has outgrown the space available and you now need more industrial space to house your business. Now the question is, should you buy a property outright or lease a property to cater for the increased business needs? The decision about whether to lease or buy an industrial property often is far more complex than purchasing a residential property. And trying to work out precisely which type of a property is best suited for your business needs can present quite a number of challenges. With this in mind, here are some merits and demerits for both leasing and purchasing an industrial property for your business operations.
Merits of leasing
Leasing offers the business owner the ability to quickly change and adapt far much faster than out owning the property. For investors, leasing a commercial property offers the chance to go and invest elsewhere. Not only this, a lease’s expiration date offers the business owner specific dates by which to plan and re-evaluate the actual business needs. Leasing does not tie up as much of the business owner’s cash and equity, meaning that a business owner can be able to do other things with the business, for instance, acquiring more businesses, getting a big space for business expansion, and much more. In simple terms, leasing provides the business owner greater flexibility when a need to expand arises.
• Cost predictability and stability
Long-term occupancy costs of leasing a commercial property are normally easier the budget and forecast. Although some leases might expose the business owner to minor capital expenditures, the majority of commercial lease structures allow the business owner to avoid unforeseeable capital costs, for example roof renovations, building structural repairs, parking lot replacement, mechanical systems replacements, and the likes.
• Financing source
With the coast of leasing a commercial property falling far below the cost ownership, leasing can be seen as an attractive source of business financing. Where most marginally or small profitable business organizations find conventional financing option costly, commercial property owners are more than eager to sign a lease with them. This means that the business owners are able to use the money they could have used to purchase the property in other ways to improve their businesses.
Demerits of leasing
• Lack of control
Business owners who opt for industrial property for lease in Toronto have no control of what happens to the property they are renting. If the landlord decides to sell the property, then the business owner is likely to be forced to look for an alternative space to operate his business. This not only is expensive in the short-term and inconveniencing, but also ends up hurting the bottom line as a result of impacting the business’s customer base negatively.
• Rent increases
Leasing an industrial property means that rent is guaranteed to increase in line with the current costs of living. Renewing the lease also means attracting additional premiums or when the landlord ups the cost.
Merits of purchasing an industrial property
• You have control over the property
The property is yours, meaning that you can do whatever you want with it. In simple terms, once you have purchased a property, you hold all the cards when it comes to deciding how best to manage it.
Similar to buying a residential property, you industrial property will potentially be increasing in value while you operate your business from it. If things take an unfortunate turn, you can simply sell it to offset your expenses.
• Planning easily
Planning and budgeting for the future is much easier when you know precisely how much you will be spending on each month. Apart from this, a mortgage on a commercial or industrial property offers a strong basis on which to base the business’s financial decisions.
Demerits of purchasing an industrial property
• Ongoing maintenance costs
Maintenances costs on industrial property, especially the aging ones, can be relatively high. You may find that such costs need o be shelved out upfront and it’s hard to find a loan to help you shoulder such maintenance costs. These costs can also include the council rates and other annual tax costs.
• Lack of flexibility
If the business outgrows the space you are operating it in, chances are that you will be forced to look elsewhere for additional space. Unfortunately, if you locked the property into a mortgage, then you may not be in a position to move any time soon. This limits your ability to grow your operations unless you sell it and find something bigger.
• The price
Similar to purchasing residential property, buying industrial property isn’t cheap. Not only are industrial properties costly to purchase, the sellers mostly want the money upfront. You have to be cash-rich in order to meet the demands of purchasing industrial property or you have extremely good credit with the banks such that they will readily give you a loan for purchasing industrial property.