Lease a Place for Business: Everything You Need to Know

To lease a place for business, small business owners can look for retail and commercial space to upgrade their space and find a better location.3 min read

To lease a place for business, small business owners can look for retail and commercial space to upgrade their space, find a better location, or establish a storefront for the first time. This is often a necessary step that helps your business grow.

Leasing Commercial Real Estate: Introduction

  • Try to narrow down the places to two or three so that you can negotiate dividends in the future.
  • You shouldn't sign a lease until you know how much with be spent in the big picture including maintenance cost.
  • Don't get emotionally attached to the place until you've negotiated the terms of the lease since you should only worry if clients will love the location.
  • Make sure to get a hold of the finished copy of the lease and read it since each commercial lease is unique.
  • Create a spreadsheet where you can compare the possible properties you're interested in. Include details like lease term, expenses, unit price, square footage, and pros and cons of each.

Advantages of Leasing Commercial Real Estate

When leasing real estate in commercial terms, you will have to give less in upfront expenses such as the attorney fees, pre-lease inspection, and security deposit. Upfront costs are only about a sixth of the total costs when buying commercial real estate, which means less capital in an asset that lasts long.

You can also deduct certain things in your taxes including property insurance, utilities, and lease payments. When you lease real estate, unlike when you buy, you can deduct all of your lease payment.

Lease terms are usually from three to ten years, so there is more flexibility to move locations or increase the property size than if you bought the property.

Lease properties are usually more abundant than those for sale, which gives you more flexibility and choice to the property types. Leasing can also be more affordable than buying.

Disadvantages of Leasing Commercial Real Estate

Since you're leasing the property, you can't use the long-term investment to earn a return in price appreciation once you sell or refinance. You also can't build equity so your income potential is reduced. There's no rental income coming in which also reduces the possible return.

It's possible to pay a higher monthly payment compared to a loan payment. For instance, a triple net lease holds tenants responsible for monthly retail insurance, property taxes, and utilities and maintenance. These expenses plus the lease payment will make the monthly lease more expensive than the loan payment.