Property is one of the largest expenses for any business, whether that means renting a storefront or purchasing a warehouse, but expense isn’t the only challenge facing business owners.
When it comes to investing in real estate, business owners need to project well into the future, determining whether a property will still meet their needs a few years down the line. Companies don’t want to be trapped with a too-small property because they already took out a loan on it, but they also don’t want to overpay on a rental they plan to remain in for years to come. So how should a business owner decide?
When considering whether to buy or lease a business property, there are a number of potential variables that business owners should consider – but there’s also a third way: a master lease. When neither leasing or buying seems quite right, opting for a master lease may be the ideal option.
Leasing – When You Don’t Want A Loan
There are several reasons that businesses may choose to lease a property, from the relative simplicity of leasing compared to buying to future plans to expand. One major reason that businesses choose this route, though, is that their finances are still precarious and they either don’t qualify for a loan or aren’t interested in taking on a significant debt. It’s typically best to build up your business’s credit before trying to purchase a property. On the other hand, many business owners worry that leasing is a waste of money.
Master leases offer a way to acquire commercial property without a loan, but more importantly they don’t lock businesses into a property before they’re ready. A master lease is still a lease – just with the option to buy the property later down the line. For businesses looking into a commercial property purchase, the option to choose a master lease can take some of the pressure off of an important choice.
Buying – Finding A Permanent Choice
In contrast to leasing business spaces, purchasing a property is typically a choice made by more established companies with financial resources and that can qualify for a sizeable loan. Even with excellent money management, though, taking on a large mortgage can be overwhelming, as can managing a building. This is one of the primary advantages of opting for a master lease. When operating properties under master lease agreements, the tenant actually gets all the benefits of owning the property without the financial burden. It a kind of practice ownership – but a version in which you can still make a profit, since any income over and above your lease payment is yours to keep.
Opting for a master lease agreement is often the best way for acquiring a property, and it’s not confined to businesses; investors can also use master lease agreements to acquire a first rental property for residential use. And what’s more, master lease agreements can be a great opportunity for owners to offload a semi-vacant property during an economic downturn, stabilizing their income base. In the space between leasing and buying a property outright, master leases are the best of both worlds.
Property ownership is a powerful opportunity for small businesses, but it’s also a daunting one, and it shouldn’t be undertaken lightly. Evaluating the market, the long-term costs of renting, and the future plans for your business can all help you make your decision, but a master lease allows you to keep your options open until you know more about what’s next for your company.
