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.
You can be at the landlord's whim if he or she can choose to increase the rent prices in the annual escalation, for example. Other agreements even allow the landlord, the tenant, or both to end the lease at any time.
When the lease ends, the landlord can increase the rent more than what was in the previous agreement, so you can end up paying more for a property that's not yours.
Factors to Consider in Leasing Commercial Real Estate
Whether you want to buy or lease the commercial property, you want to consider the following:
- How much property is available in the area
- Present size of your company
- Monthly cash flow each month
- Working capital in your bank
- Possible expansion plans
Steps to Find Properties
- You have to figure out how much space is needed. Check out competitors and get a feeling for how much space is needed for your business type.
- Figure out what you can afford to buy. Take a look at your finances if your business is already running. If not, estimate your budget for retail space.
- Look for about four or five places to rent by doing your own search online. If there's nothing valuable for free, then you can consider signing up for a paid subscription.
- Take a look at the local newspaper. Landlords who own commercial property can advertise in the newspaper which also has an online presence. Head to the website for other places the landlord owns.
- If you are thinking of buying or leasing a commercial property, you might want the help of an agent or broker who can help you search and negotiate the property terms.
If you need help with leasing a place for business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.