Running a business can be a challenging but rewarding task. One crucial decision you will have to make as the owner of the company is whether you will lease or mortgage your business property.
Both choices have their pros and cons. Read on to find out which option would suit you best.
Mortgaged Property Becomes an Asset
The primary benefit of mortgaging a facility is that it will eventually become a prized asset. This will naturally increase the equity of your business.
When you mortgage your business property, the monthly payments will go towards building your company’s equity. Also, business property is highly likely to appreciate over time, and that can considerably increase the value of your company.
If you own your business property, you can report the deduct depreciation, interest, repairs, and other non-mortgage related expenses from your tax report. These tax deductions are only applicable to owners of property.You can easily find out how much money you can borrow for your mortgage using Habito’s calculator app.
Leasing Offers Flexibility
Leasing, however, offers more flexibility than mortgaging a property. Flexibility is an essential consideration for many businesses.
Fast-growing and cyclical companies will especially find it beneficial to rent since they will not be able to forecast their space needs easily. Also, many relatively new businesses will scale with time, and they will naturally require a larger space for their operations. If the company had bought the premises, it would be an extra cost to look for a new space when they already have an existing one.
Down Payments on Property Are Very High
It is also important to note that the down payments on business property are often very high. Smaller companies are likely to benefit more if they lease the property and free up the money that would be used for the down payment. That way, they would have more funds to invest in their business and make their operation more efficient.
If you mortgage the property for your business, you will be responsible for the maintenance of the property. Maintenance of the commercial space can be costly. If you choose to lease the property, your landlord will cover all maintenance costs.
Many companies choose to lease their business properties. This does not necessarily mean that leasing is the best option for all businesses. In fact, many companies would benefit more if they were to mortgage their property. This option will increase your equity. It might also reduce the taxes you pay as a business.
Leasing has its advantages as well, the most important being the fact that you will not need to spend a substantial amount of money on the down payment. You will also have the flexibility to move to other premises at any time.