Thursday, March 28th 2024

Investing in Commercial Real Estate

The decision to own or lease the land from which a company operates is a fundamental question. Most of the time it revolves on two key issues: the amount of capital the business has to invest and the type of business.

1. Amount of capital: Real estate requires a large downpayment and a commitment to servicing a loan for an extended period of time. If your business is already hamstrung by a budget this is obviously not a consideration. Larger companies will have to determine if the costs saved outweigh the expenses of buying versus simply leasing.

2. Type of business: Manufacturing, wholesale, distribution and general commercial enterprise historically don't gain a whole lot by owning the real eatate as well as all the other hard assets that are required to operate their business. This assumes the business can get favorable lease terms, including a length of time that is reasonable. Retail, however, or service corporations (CPA, Attorney, Financial Services) often become affiliated with their location in the mind of their clientele so the real estate can be a good investment so that they can control this. If you lease, you should realize that the landlord will realize that the longer you are in one place, the more likely you are to need to be there in the future and so the rent will go up accordingly.


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