The benefits of leasing include:
- No down-payment and lower upkeep costs. The lack of this large upfront investment keeps your funds more liquid for use in other areas. Your landlord would take care of all or most repairs and maintenance on a gross or modified gross lease.
- Affordability in competitive real estate markets. Rental payments make it easier to get your foot in the door of a hot real estate market.
- Flexibility. You can choose to stay or move after your lease is up. You’re not locked into a mortgage.
- Tax breaks. You can deduct the entire monthly lease payment as well as ongoing costs such as utilities.
Some of the drawbacks of leasing commercial real estate include:
- Lack of equity opportunity. Your monthly rental payments in most cases won’t get you an ownership stake in the property.
- Most lease property is owned by investors that are leveraging the property and expecting that lease revenues will cover all of the operating costs, loans costs and provide them with a return on capital that meets their investment objectives. Read another way, the landlord is making money when you lease.
- Your monthly rent is likely to be more than the average monthly mortgage payment in some areas and you aren’t creating any equity or shelter any income with depreciation expense.
- Higher upkeep costs on some leases. Net leases shift more of the cost burden of repairs and maintenance from the landlord to the tenant. A lease vs buy analysis from Saint Arnold Commercial can help you to make the investment decision that is best for you.
- Rent hikes. Your rent now may not be your rent next year or the year after. This can make it difficult to do long-term budgeting.