Renting vs. Buying Commercial Real Estate in Tampa Bay

As a business owner, you might be facing a dilemma: should you lease or buy a commercial property? The answer to this question depends on many factors, and ultimately, you are the only one who will know what the right option for your company is. There are advantages and disadvantages to both options, and this article will go over them. It should help you decide: renting vs. buying commercial real estate in Tampa Bay – which is right for you?

Pros of Renting Commercial Real Estate in Tampa Bay

Renting a commercial property allows for more flexibility as your business needs change.

There are a few great advantages of leasing a commercial property in Tampa Bay. They include:

1. More liquidity
2. Potential tax benefits
3. More flexibility
4. Easier to get into a property

More liquidity

Leasing a property requires a significantly lower amount of cash upfront. Although you will have to cover quite a few expenses, all of them combined are much less than what you would need to purchase a property. Most of your liquid capital will be tied to that property if you decide to buy.

The expenses you should prepare to cover once you decide to rent include:

• A security deposit
• Pre-lease inspection
• Attorney fees
• Broker fees

Possible Tax Benefits

Both business owners who decide to buy and rent commercial real estate in Tampa Bay enjoy some tax benefits, although they are different. It’s always advisable to consult your financial advisor, a tax professional, or your broker to get more precise information. However, when you decide to lease a commercial property, you can expect to deduct the following from your tax payments:

• Lease payments
• Property taxes
• Property insurance
• Utilities
• Maintenance

Greater Flexibility

Lease agreements can last between three and ten years, whereas a mortgage can last 15 to 30 years. Renting offers you a lot more flexibility because it allows you to move out of a property and find another one that better suits your changing business needs.

Easier to Get Into a Property

It is often easier to lease an existing property from a property management company than it would be to try and purchase it from them. Buying a building you like may not even be possible in some instances. Moreover, leasing a property allows you to get into a perfect location, which wouldn’t be possible if the property isn’t for sale.

Cons of Leasing Commercial Real Estate in Tampa Bay

When you lease, you build no equity and have no option for additional income.

There are also a few disadvantages of leasing commercial properties you need to consider. They include:

• No investment potential
• No property control
• Higher monthly expenses
• Costs can increase

No Investment Potential

When you lease, you are not the property owner, and you don’t benefit from price appreciation if the building is sold. There is no way to build equity in the property, and you can’t make rental income.

No Property Control

The property owner has complete control over it, and their decisions may affect your business. Your agreement may have escalator clauses that allow the owner to increase the lease yearly. Moreover, a clause could enable them to terminate the lease under certain circumstances. Leasing a commercial property brings more uncertainty than owning one.

Higher Monthly Expenses

Your lease payments will likely be higher than your monthly mortgage payments. It is especially true if your lease agreement stipulates you to pay for monthly property taxes, retail insurance, maintenance, and utilities.

Costs can increase

Once your lease term ends, your landlord may decide to increase the rent. If you can’t afford it, you can choose not to renew the lease, but you will have to look for a new commercial property.

Pros of Buying Commercial Real Estate in Tampa Bay

Owning a commercial building comes with a lot of fantastic benefits and a few risks.

Purchasing a commercial property has its advantages, and they are exactly what leasing lacks. Especially in states like Florida, your business may benefit from owning a commercial building. Once you discover all the benefits of owning a commercial property here, you will likely be tempted to schedule a cross-country move and settle in the Sunshine State. You will also need commercial movers to relocate your company so you can enjoy the benefits of owning a commercial property in Tampa Bay:

• Earning equity
• Asset appreciation
• Rental potential
• Tax benefits

Earning Equity

When you buy a property, you earn equity in two different ways:

1. If you financed with a loan – you earn equity as you repay the loan
2. If you renovate – the property’s value increases, and so does your equity

Asset Appreciation

If you make any improvements to the property, its value increases. Moreover, the value increases with the general appreciation of the market as well. Therefore, if you decide to sell in the future, you will benefit from the price appreciation.

Rental Potential

If you don’t occupy the entirety of the building you own, you can rent the rest of the space to other companies, which brings you additional income. However, you also assume the role of a landlord and become responsible for the maintenance, looking for tenants, and more. The solution is to hire a property manager, which will reduce your earnings.

Tax Benefits

Like leasing a property, purchasing one also brings you some tax benefits. If you decide to buy a commercial property, you can deduce the following from your tax payments:

• Interest expense
• Depreciation expense
• Other costs that are not related to the mortgage

Cons of Buying Commercial Real Estate in Tampa Bay

Where there are advantages, there are also disadvantages, and when it comes to purchasing commercial real estate in Tampa Bay, there are a few:

• More upfront expenses
• Increased liability
• No flexibility
• Risk of depreciation

More Upfront Expenses

You will likely pay six times more initially when you buy a property than when you lease. Some of the expenses include:

• Downpayment
• Closing costs
• Due diligence fees

Increased Liability

As an owner, you are responsible for the safety and health of the occupants and everyone in the building. All the repair and maintenance costs are also your responsibility. If you rent parts of your building, you are responsible for those as well, and you may have to pay for additional insurance policies.

No flexibility

Once your lease is over, you are free to move out and look for a property that will better suit your company’s needs. When you own a building, whether your business outgrows it or it becomes too big for you, you have few options. Selling is not always the easiest thing to do, and it may take a lot of time.

Risk of Depreciation

Although properties’ value increases over time and owners benefit through equity in most cases, there is always the risk of depreciation. You never know what market conditions will be, and your property value may not continue to increase.

The Bottom Line

Whether you should rent or buy commercial real estate in Tampa Bay is a decision only you can make. Knowing all the pros and cons of both options can help. All in all, you need to evaluate your situation carefully. Especially if you are considering moving your business to a different state, it may be best to rent first and buy later. It allows you to have an exit strategy. You never know what things will be like.

Meta: Renting vs. buying commercial real estate in Tampa Bay – which is right for you? Read about all the advantages and disadvantages of both options and make the best decision for your business.

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