Investing in a commercial space can be an overwhelming task, especially for someone looking into commercial real estate for the first time. Terminology is thrown around and not always explained. One of the most common questions regarding commercial real estate is, “What is the difference between leasing and owning?”
The basic differences between the two is very simple; the complexity lies in the details of the two.
Leasing an Office Space
Leasing a space is essentially like renting a residential property. Each month, the tenant pays the landlord a certain predetermined amount of money for rent. In exchange, the landlord carries many of the responsibilities of property management such as maintenance and purchasing building insurance. Additionally, in the short-term, leasing is much more cost-effective than owning for many companies, especially those that do not have dedicated facilities personnel. A lease often requires a deposit, but no down payment as compared with purchasing, and it is not the same kind of long-lasting financial commitment.
Owning an Office Space
Owning a commercial office space is a different kind of commitment than leasing. Owning comes with hefty down payments and a long-term commitment. It is common for commercial real estate loans to be amortized over 30 years. The pro, however, with financing the purchase of commercial real estate is the potential to refinance at some point. Additionally, if your business sticks around through the terms of the loan, you will no longer have a monthly payment. This will increase your profit significantly and eventually save you money. Plus, you should look at owning commercial space as an investment. Property values go up often, so there’s no telling what the office space you purchase now will be worth by the time you have paid off the loan.