Should You Rent or Own Your Business Facility?

January 31, 2019

Should You Rent or Own Your Business Facility?

Finding the right location for your business is key. But when it comes to deciding whether to rent your facility or own it, the choice can be tough — there are advantages to both. Before you pull the trigger, think about the following:

  • How long do you plan on staying?
  • What are the interest rates, the price of the building, or the price of the land?
  • Will you be buying at the peak or the dip of the real estate market?
  • Are you an established business, or are you just starting out?
  • If you’re already in a building and you’re considering buying, have you been there long enough to determine growth?

“It is important to be financially sound and know that your business is going to continue to be successful,” said Javier Padilla, CPA and Manager. “If you’re still looking to acquire a business and find a way to maintain cash flow, then it’s likely a good idea to lease. When it comes to buying property to house a new business, it’s not just about handling the 20% down payment — it’s about calculating a plan for growth and ensuring that you’ll be able to comfortably pay the mortgage as well as your normal day-to-day operating expenses.”

The main advantage of leasing is that the initial costs are less than they would be if you purchased a business facility outright. It’s also much easier to avoid being stuck with a facility if things with the business go awry.

However, if you purchase a facility, payments will be less in the long run — not to mention the benefit of rising property values. Another major benefit of purchasing is the potential to shorten the depreciation life of your assets by completing a cost segregation study and thus accelerating the depreciation expense for tax purposes.

What is a Cost Segregation Study and How Does it Benefit You?

A cost segregation study/analysis identifies and separates personal property assets that are grouped with real property assets. The goal is to identify assets that can depreciate faster than the building itself, such as the HVAC system and equipment. By assigning a shorter than the normal 39-year life that is assigned to non-residential buildings, depreciation expense can be taken in earlier years which could result in a reduction of tax obligations. The study serves as a great tool for tax planning purposes in both the current year and in the future.

For business owners looking to buy their building, we recommend a cost segregation analysis to discover how much you can save. We can help facilitate the process with partners and certified agents who understand the life of your business.

Let us help you make the best decision for your business. Contact Javier Padilla at jpadilla@gccpas.net or a member of our construction team at (209) 527-4220.

200 West Roseburg Avenue
Modesto, CA 95350

(209) 527-4220 (phone)
(209) 527-4247 (fax)

https://www.grimbleby-coleman.com/resources/articles/193

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