The Advantages of Leasing a Commercial Real Estate
• Just like any business decision, there are advantages and disadvantages of leasing and owning commercial real estate as well. The correct solution depends on each property’s features and location as well as the owner’s personal, financial, and tax situation.
• From the owner’s perspective, ownership means obtaining the full physical and economical use of a property. There are several advantages to this approach, it gives the owner complete control to operate the building as they see fit. The ability to transform the appearance of a property and take advantage of its location is very important to many owners.
â€˘ The financial benefits of ownership include tax savings, and additional rent income. Tax savings come from cost-recovery rules and mortgage interests paid during the holding period and when the property is sold. As the owner of the property, he or she is entitled to any appreciation in the value of the property during the period the propertyâ€™s holding. And lastly, if a portion of the property is rented out, income from the other renters can be used to pay a portion of the mortgage on the property, fund the ownerâ€™s principal business, or be used for anything the owner see fit.
• As the owner of the property, he or she bears a substantial amount of risk in the form of property damage, illiquidity, safety of the building’s occupants and visitors, functional obsolescence, and changes in codes or zoning ordinances that may be unexpected. • Financing for purchasing commercial real estate requires strong financial statements on the company and can sometimes require personal guarantees from the principals of the company themselves. Often, the addition of long-term debt on the balance sheet can make it hard for some companies to qualify for a mortgage under the lender’s debt ratio restrictions.
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Published on Nov 11, 2013
Leasing eliminates most of the risks in building ownership. It also relieves you from the burden of property maintenance and property manage...