For doctors this question is an important part of the medical practice whether realized by the physician or not. Each professional needs to access their own position in the long term aspects of their financial position. In my architectural practice I realized that I needed to own a building rather than paying down the mortgage of my landlord. I also realized that long term I owned an asset rather than 20 plus years of paying rent with no return on my money.
I asked Kristine Vail, CPA of Roschke & Wall to write a financial perspective other than my own of the pros and cons of leasing or buying a building.
Kristine Writes the following-
“Part of building wealth and managing taxes involves making long-term strategic decisions. One question that comes up for a business owner is should I lease or buy a building. Then there is the added question, if I buy should I build.
Let’s talk about buy vs. lease
When you buy a building you are growing equity over time. As the equity grows, you will have an asset that can be borrowed against. This asset can be rented for income. Your building can be your largest billboard or advertising vehicle. You no longer have to worry about rent increases, risk of eviction or non-renewal of lease.
When you buy a building you must put down 20% of the purchase price. Your asset is not liquid and you will need funds set aside for emergencies and items that wear out over time.
When you lease your space, you gain access to a better location with less cash. The landlord may be willing to do a build-out and amortize the cost into the rent. If you are managing growth, you will have more flexibility to change space or expand to multiple locations.
However, when you lease your space, the money you spend each month doesn’t create any long-term wealth.
What about building a new commercial building?
It’s a lot easier to move into an office designed and decorated for you. You get the latest technology and advances, built to the latest codes and acquire warranties.
You need a team of experts starting with a good architect that can design not only the building, but also the office layout efficient for your needs. Your building can be designed to accommodate future growth, either by additions or space leased to others until the need arises for expansion. Usually appreciation is more beneficial if you build new, while buying an existing building delivers a premium to the sellers.
Cost segregation rules are only some of the tax benefits of either refurbishing or building commercial real estate. This is where a good CPA comes in handy. They can compare costs with a cash flow analysis of your operating expenses including looking at your current operating lease commitment.
Investing in commercial real estate makes sense if a business is profitable especially for any business that is recession proof. Your investment can benefit you in the short term by decreasing your cash flow and in the long term through appreciation. “Income producing property” adds to a properly diversified portfolio and helps reduce your tax burden.”
It is advised that you meet with your financial advisors to review your options and make plans for the future.
Contact Gary Heathcote gary@heathcote.net Website http://www.heathcote.net/
Contact Gary Heathcote gary@heathcote.net Website http://www.heathcote.net/
