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Building Vs Renting for Commercial/Industrial Space: A Debate for the Ages

Your business is booming. You've maxed out the usable space for your business and now your lack of space is limiting the amount of money your business can make. You need a new facility that can grow with your expanding business, but what to do about that is a mystery. Do you buy or rent an existing space that will work temporarily, or do you build a new space fully designed to grow with you? Let's take a look at some tips and tricks that will help you sort through one of harder elements of moving into a new space.

Building a new commercial space can be beneficial for a business in many ways. It offers stability and a sense of ownership, potentially providing more control over the space. It can also be a great investment as the business owner can receive a return on the investment from appreciation of the property or from rental income. Additionally, a business can deduct any mortgage interest payments as well as any applicable local property taxes. Finally, when a business owns its own space, it can customize it to fit the business’ needs more easily than when renting.

When you build a new commercial space, your cash flow will be affected in a few ways. First, you will need to make a large down payment on the purchase, which will likely be the largest outflow of cash from your business in a single transaction. Second, you will need to make mortgage payments each month, which will increase your monthly outgoings. Third, you will be responsible for all maintenance and repairs related to the property, which can be costly. Finally, you won’t be able to deduct rent payments as a business expense, which may reduce your taxable income. In comparison, when you rent a commercial space, your cash outflow is usually limited to the monthly rent cost and any associated fees, such as deposits or insurance.

This might sound like an endorsement of renting over purchasing however, here are some things to consider when renting that can severely inhibit your ability to grow as a company:

  • Limited flexibility: When you rent a commercial lease space, you are generally stuck with the terms of the lease agreement, which can be difficult to change or modify.

  • Lack of security: When you rent a commercial lease space, you are essentially at the mercy of the landlord, who can choose to raise the rent or terminate the lease at any time.

  • No equity: When you rent a commercial lease space, you are not building any equity, as you would if you purchased the space.

  • Higher costs: Generally, the costs associated with renting a commercial lease space are higher than those associated with purchasing a space.

  • Less control: When you rent a commercial lease space, you have less control over the space, as you do not own it.

When you own the commercial space yourself, there are plethora of ways for you to make additional money on the space to help offset that initial cash expense. Some of these ways include the following:

  • Lease to other businesses: You can lease out the commercial property to other businesses, such as retailers, restaurants, and office space users.

  • Rent out space: You can rent out space on the property to other companies who need short term storage, or to individuals who need a place to park their car.

  • Offer services: You can offer services such as security, landscaping, janitorial, or other services to tenants and businesses in the area.

  • Sublease: You can sublease the space to other tenants, such as a tenant who needs extra office space or a tenant who needs extra storage space.

  • Invest in other businesses: You can invest in other businesses in the area, such as local tradespeople, retail stores, or other businesses that provide services to the local community.

Ok, so you're convinced. Building is the way to go. Now the question becomes "How do you design a commercial property to maximize your return?" Let's take a look at a few ways you can do that:

  • Conduct a Market Analysis: Research the local market to understand demand and competition. Analyze the local economy, demographics, and trends to determine the best type of commercial property to buy and the best location for it.

  • Set a Budget: Determine the amount you’re willing to spend to purchase and maintain the property. Factor in costs like renovations and repairs, insurance, and taxes.

  • Choose the Right Property: Evaluate various commercial properties to find the one that best fits your budget and market analysis. Consider factors like size, location, condition, and zoning.

  • Choose the Right Building Company: (Peak Building Systems, of course!) to help design and value engineer the right space for your company's needs while keeping your budget in mind.

  • Partner with a local GC: Choose someone you can work with who has a reputation for delivering jobs on time and under budget.

  • Negotiate a Fair Price: Negotiate the purchase price with the seller to ensure you get the best deal.

  • Invest in Improvements: Invest in renovations and improvements to the property to maximize its value and attract tenants.

  • Set the Right Rental Rates: Research the rental rates of similar properties in the area to determine the right rental rate for your property.

  • Market the Property: Market the property to attract tenants. Use online listings, signs, and other forms of advertising.

  • Manage the Property: Create a rental agreement and manage the property to ensure it’s maintained properly and that tenants pay their rent on time.

Overall, building a new office and workspace for a company can be a far better business decision than renting an existing facility or buying an existing space. Building a new office and workspace provides greater flexibility in terms of size, layout and design, and will be tailored to the specific needs of the company. Additionally, building a new space means the company will not have to worry about the cost of lease renewals, and can benefit from lower maintenance costs in the long run. Furthermore, building a new office and workspace can provide a much-needed sense of pride and ownership among the company's employees, leading to improved morale and productivity. Finally, building a new office and workspace allows the company to maintain control over their own space, rather than relying on a landlord to make changes and improvements. All of these factors combined make building a new office and workspace a much more profitable, practical and beneficial business decision than simply renting an existing facility.

Are you ready to move into a space that's completely catered to you and your growing company's needs? Contact us today at (720) 282-5074 to get started!

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