Does getting a commercial mortgage make sense for your business or should you get a lease?

Consider the benefits and risks of both options before you decide.

You may not be aware of the specific benefits of mortgaging vs. leasing. Both options have their advantages and disadvantages. Below is a summary to help you decide which option may be best for you.

Should you choose to get a mortgage you gain equity in the long term, both as you pay down the mortgage and as the property appreciates in value. This translates into a valuable potential asset for your business, should you choose to sell or refinance the property in the future. Mortgaging also offers stability, as the monthly payment is usually fixed during the term of the mortgage. This option also provides you as a business owner the opportunity to rent any extra space you are not currently using. This ability to earn income from mortgaging your property comes with its tradeoffs. You will be investing more up-front and you will assume responsibility for the safety of your tenants should you choose to rent out any extra space. The high initial investment involved means you will be tied to the space for a longer period limiting your options to expand your business in the future.

Leasing offers greater tax benefits, costs less upfront and generally gives you a wider array of properties to choose from. With a lease, as a business owner you can deduct your lease payments and your utility costs, whereas with a mortgage you have fewer deduction options. The lower initial investment for a lease (usually the down payment is 1/6 of the down payment required for a mortgage) means you can invest more in your business operations upfront. In addition, as a general rule there are usually more commercial properties available for lease than there are available for purchase. Perhaps the greatest drawback of leasing, is that lease payments are usually higher than mortgage payments, you cannot earn equity and the terms of your lease may change. It is usually at the land-lords discretion to redefine the terms of a lease, giving your business less stability in the long run.

So what does all this mean?

When making the decision as to whether to mortgage or lease your business space it is important to ask yourself the right questions. Do you see yourself outgrowing the space in the near future? If so then it is probably better to lease the location. If not, a commercial Texas mortgage offers long term stability and the opportunity to gain additional income, either from equity or the rental of extra space. Fit small business, recommends mortgaging your commercial property should you anticipate staying longer than seven years and leasing it otherwise.

As a rule of thumb consider the needs of your business in the long term when deciding whether to pursue a commercial mortgage or to lease a property

Consider the needs of your business in the long term when deciding whether to buy or lease commercial property. Does your business need stability? Do you want greater control over your property? A mortgage is probably the best option. Do you want to more invest your business operations or do you see expanding in the near future? Then a lease might be the best option for you.

Dennis Dahlberg

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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