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Using a Commercial Mortgage to Buy a New Space

Consider buying commercial property with commercial real estate financing rather than leasing the space

If you've established your business and are tired of leasing your current space or want to expand into a new space, now may be the right time to purchase commercial property. Buying commercial property gives you the opportunity to build equity in your space rather than simply making payments to a landlord each month. It also gives you more free reign over renovations. However, leasing can provide more flexibility with respect to location and offer cheaper monthly payments, as well as provide a building supervisor to help handle repairs. So, if you need room to grow your business, how do you decide which option is best for you? Use our guide below to evaluate the differences and benefits of buying versus leasing commercial property. Then, if you decide to buy, contact a business banking professional from Citizens Bank to learn more about getting a commercial mortgage to expand your business.

Considerations when buying commercial property

If you know you want to stay in a particular location for several years, and are ready to make a long-term commitment, buying commercial property may be the best option for your business. Here are a few other benefits to purchasing commercial property:

  • You may be able to better forecast long-term occupancy costs as you'll know the exact amount of the monthly mortgage payment, as opposed to a lease, which could change annually with the market.
  • You may be able to take advantage of a burgeoning market before the values in your area rise.
  • It can increase your business's assets and collateral by adding the ownership of a building.
  • You may be able to deduct your property taxes and the interest expense on your commercial real estate financing. You may also be able to deduct repairs, but depreciation and improvements must be amortized over 39 years. Speak with a CPA (Certified Public Accountant) or tax advisor for information on how to handle taxes and depreciation for your business.
  • You may be able to purchase land and build your facility to your exact needs and specifications.
  • You have the opportunity to remodel your building however you want without leasehold restrictions. This means you can build an addition as well as renovate as long as your city's building code allows it.

Buying commercial property is an investment in your business and you need to ensure it won't put a strain on your finances. Make sure you examine how buying could impact your liquidity and ability to take advantage of other business opportunities before applying for a mortgage or making an offer on a property. If you decide buying a commercial property is the best option for your business, consider getting a commercial mortgage from Citizens Bank to buy land or an existing building to keep up with your business's growing needs over time.

Considerations when leasing commercial property

When leasing commercial property, you have a short-term commitment, which may be beneficial if you decide the area you're in isn't right for your business - or you find a more appropriate or more affordable option elsewhere. When leasing, you can walk away at the end of your agreement and buy or lease a different commercial property. Or, you may have the option to break your lease. However, if you leave before your term is up, you may have to pay an extra fee or find a new tenant for the space. Leasing is also more liquid than buying, reducing the impact on your working capital, which can be beneficial if you don't have the funds for a down payment or higher monthly payments at the present time.

When leasing a commercial property, if you want to make changes to the inside or outside of the building, you may be limited by your leasing contract. While generally aesthetic changes are permissible within your leasing agreement, you will often be limited if you want to make more drastic improvements like additions or floor-to-ceiling renovations. You will also be limited to the choices made by the landlord with respect to utility providers and neighboring tenants. This could mean you end up paying higher bills than if you owned the space and could choose your providers.

Keep in mind that if you lease commercial property, you forego the opportunity to build equity in the property. The funds for monthly payments need to be accounted for as part of regular business expenses. However, if you're still growing your business, the flexibility and potential lower cost of leasing may be worth it after you run a cost-benefit analysis.

Which businesses may benefit most from buying commercial property?

If you're a well-established business owner like a doctor, CPA or lawyer who envisions significant growth of your practice, buying commercial property may be right for you. Owning commercial property not only provides you with additional assets for your investment portfolio, but it may also present more opportunities for growth. For example, a doctor who owns commercial property won't need to obtain a landlord's permission to build an addition to incorporate physical therapy into his or her practice. Likewise, a law practice adding a partner or associates can renovate to increase space as needed.

Young businesses, retailers and restaurateurs, on the other hand, may enjoy the flexibility offered by leasing a commercial property. Whether taking advantage of the lower lease payments, capitalizing on the improvements made by previous lessees, or enjoying the benefits that come with having a landlord handle repairs, leasing can be helpful until you reach the point where you want to expand further.

Contact Citizens Bank and ask us about commercial real estate financing

If the benefits of buying a commercial property sound appealing, a commercial mortgage from Citizens Bank may be the right option for your business. Contact a Citizens Bank business banking professional and ask him or her about our commercial real estate financing options to find out how we may be able to help you acquire commercial property for your business.



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