Rent vs. Buy: The commercial real estate debate

Business is booming in Gainesville.  

Butler North. Celebration Pointe. Butler Town Center. Innovation Hub. Commercial real estate leasing options are growing in Gainesville and investment options certainly remain strong with land availability in every direction north, south, east, and west of the city-hub.

But as a successful small business owner looking to take the next step in growth, the question remains, do you rent or buy? The potential for commercial real estate investment is certainly high, but there are risks involved – risks that may not be recoverable for the small business.  

According to the US Small Business Administration, investing in commercial real estate is one of the largest expenses for new and growing businesses. And chances are, the core strength of your business (and you as the owner or manager) is not in evaluating and appraising real estate, so now is the time to call in the experts.  

Assemble your team

Finding an agent that specializes in commercial real estate and is familiar with the ins and outs of the community is crucial. Your ideal property may not yet be available, but a plugged-in agent will be knowledgeable not just about today’s market, but also about what will soon be available. Also, be sure to confer with other business owners that have already made a successful lease vs. buy decision. When you start to hear one or two names mentioned multiple times, you’ll know who to call.

As with anything in business, the numbers don’t lie. Bring in your accountant to fully evaluate your company’s ability to take on the challenges of a commercial property investment. With professional advice on tax implications, operating expenses, cash flow analysis, and potential investment income you are better able to make the most educated business decision.

You will also need an attorney experienced in real estate leasing and transactions to help navigate negotiations and red flag any areas of concern.

Location, location, location

Even if you did your due diligence and completed a thorough evaluation of the location prior to purchase, sometimes things change. What if the location is just wrong? What if other development in the area stalls? Today’s “hot” districts can give-way to tomorrow’s “next big thing”.

On the reverse, if your evaluation is correct and you were able to invest in a high growth area, then your company is sitting on hot property with major value that is all yours. If you lease and the property soars, watch out for rate hikes once lease renewal comes around.

Cash Flow

A large investment in land or structure is a major strain on a new business no matter how fast it is growing. A lack of liquidity may prevent you from investing in your business as your market needs change. On the upside, if your business does slow, at least you still have your property investment that you may be able to sell.

If you buy and intend to lease all or a portion of your property, the cash flow can still be uncertain. What if the tenant’s business slows or fails? A missed rent payment by another business may put you in a bind.  

Maintenance – Time and Money

As it goes with owning anything, once it is purchased, it’s yours, and is your responsibility. Factor in maintenance and monthly upkeep when deciding to purchase vs. rent. Also, take into account the time investment, which may be the single largest asset for a small business owner. If you decide to lease, ask ahead about the monthly maintenance fees of your facility as well as shared facilities or CAM (common area maintenance).

Know your Business Plan

Listed last, but probably the first to consider, is what is your business plan? Honestly evaluate your projected growth and what your business will need to support that growth. Will you need to expand in two to three years, or five to ten? Is expansion even possible where you are looking to rent or purchase? Consult your team of experts and rely on their knowledge and experience.

 

Whether you decide to lease or invest in commercial real estate, your options in Gainesville are certainly plentiful. Just as you found success in your small business, trust your team – and yourself – and keep moving.

 

By Kathryn Pizzurro

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