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Choosing between renting and buying a commercial property

On Behalf of | Feb 19, 2016 | Commercial Real Estate |

Business owners in California and around the country face some of their most important decisions during the nascent stages of their commercial ventures. Opting to form a corporation, partnership or LLC can have significant liability and tax ramifications, and choosing between leasing and buying a commercial property is another major decision.

Sometimes, entrepreneurs have little choice in the matter. Mortgages became far more difficult to obtain after the 2008 financial crisis, and new companies that lack established credit rating may find it difficult to qualify for financing. However, leasing is sometimes seen as the more attractive option even for businesses that could qualify for a loan to purchase commercial property. Renting requires less initial investment, which can allow vital working capital to used more productively. Renting also allows entrepreneurs to move more easily if their needs change, and maintenance and upkeep issues are usually the responsibility of the landlord.

Purchasing a business facility may be a more attractive option than renting if location is important and business owners are unlikely to wish to relocate in the future. Buying property may also save money in the long run, and depreciation could provide significant long-term tax savings. Property owners also have more flexibility than renters, and they generally find it easier to make necessary renovations and modifications.

Commercial property in California is often expensive to buy or lease, and entrepreneurs may be wise to perform exhaustive due diligence before entering into agreements that could be difficult to back out of. Attorneys with experience in this area may review lease or purchase agreements for provisions that could be problematic in the future. Attorneys could also provide guidance to entrepreneurs concerning the appropriate business entity to adopt and assist them with the regulatory and permit issues that new commercial ventures often face.