Before you finish entering that Google search for “buildings for lease near me”, you might want to take a few minutes to read this. That’s because leasing that “commercial rental near me” may be a mistake that costs you money and time. As LA-based commercial real estate experts, one of the most common questions we face is “is it better to buy or lease a commercial investment?” Both have their place in the market. But we believe that purchasing, when possible, is a far superior plan than focusing on a commercial property for lease. Here’s why we put our efforts behind ownership more often than not, especially in LA’s commercial market.
Commercial Property for Lease Isn’t Always Affordable
Historically, one of the biggest benefits of commercial property for lease instead of purchase was the lower upfront cost. But lease rates have been rising in the Los Angeles market, particularly in areas with plenty of commercial property like Culver City, the Arts District, and, of course, Downtown Los Angeles as a whole. Leasing commercial properties runs a risk of dramatically increased rents at renewal or even major headaches like forced relocation when an owner sells.
When you instead purchase a commercial building, you know exactly what to expect from your monthly expenses (assuming you signed a fixed-rate mortgage, of course). Fixed-rate mortgages are particularly useful for providing stability amidst market uncertainty. As the months grow into years, you’ll notice that owning a commercial property is often more affordable than the cumulative costs of leasing. That goes double for a city in which property values tend to trend upward.
Don’t Pass on Opportunities to Build Your Equity
We’re assuming you don’t view commercial investment as a charitable organization. But when you limit your options to commercial property for lease, your monthly payments only build equity for your landlord. So, how else would you view that? By purchasing a commercial building, you build your own equity.
But buildings that appreciate are the ones that really generate equity. LA has a reputation for strong appreciation in commercial buildings. Yet, some areas are better than others. It’s another reason why you may not want to be so quick with that “buildings for lease near me” search. The buildings near you might not be in the prime spot for appreciation. If you’re buying, consider starting your search in areas undergoing heavy redevelopment or infrastructural improvement. These pockets give you the best chance of a building appreciating – and boosting your equity accordingly.
Buy the Freedom to Build Your Business
How involved are you with your business? Commercial property for lease often comes with significant restrictions. Want to put up a sign? Make some upgrades to provide more comfort and convenience to your clients? Add some branding? You’ll need to run it all by the property owner – unless you are the property owner, of course.
Even if you own a comnmercial building, you’ll need to adhere to local codes and zoning requirements. But that’s different than trying to convince a landlord to let you add an electric wall sign. This is of particular concern to businesses with unique operational or branding needs (ie. restaurants, medical offices, creative studios, etc.)
Develop Your Tax Season Strategy
Last, but certainly not least, purchasing instead of settling for commercial property for lease opens up all kinds of possibilities for attractive tax benefits. Some of the most common are depreciation and mortgage interest deductions. But possibly the most underrated, yet effective capital gains tax deferment strategy, the 1031 exchange, is only possible if you own a commercial property to exchange.
You can also save money in tax season with operating expenses and rent write-offs if you’re dead set on going the “commercial rental near me” route. But you won’t find the same long-term value in write-offs that you would in owning a property that continues to increase in value.
Reasons to Lease
At JohnHart Commercial Real Estate, we consider it our duty to serve our clients by providing the information needed for savvy investment decisions. In most cases, we believe that means buying rather than leasing commercial property. But sometimes, leasing simply makes more sense. Perhaps you’re founding a start-up with limited capital. Maybe your business model prioritizes flexibility above all else. Businesses focused on short-term needs, companies requiring nimble capital, and those operating in areas that are too high-end to be affordable all offer scenarios in which leasing may be the more reasonable option.
But if you’re still searching for a “commercial rental near me”, we hope that you’ve at least explored if any purchase options are possible. Businesses that are stable, growing, and rooted in the Greater Los Angeles area should consider purchasing property an important piece of their strategy. Otherwise, you’re giving money away when it could be put back into building equity, appreciation, and security. And that sounds like the opposite of investment!
