It’s all about the Pros and Cons

When you’re making any major life decision, one way to decide what course of action to take is to consider the pros and cons. Many huge choices are made by weighing the ups and downs – what college to attend, whether you should move to take that job offer, or what kind of dog breed to adopt.

When dealing with a business like a gas station or a convenience store, one of the many decisions you’ll have to face is if you should buy or lease your chosen location. That’s even after you’ve decided on a possible location in the first place.

Let’s weigh the options of buying a store versus leasing a store.

Buying – the pros:

• It creates an asset that can raise your net worth.
• You have control over the building (upgrades, remodeling).
• It creates tax advantages, such as the ability to write off your interest payments on your loan.
• Monthly payments may be lower than what a lease payment would be.
• You gain instant equity, as the down payment is applied directly to the loan amount.

Buying – the cons:

• To obtain a loan requires good credit.
• May require a larger down payment and closing cost fees compared to a lease deposit.
• The real estate value may decline.
• Less flexibility to move, change, or expand because you’re locked into a mortgage.

Leasing – the pros:

• Cheaper to start overall; initial cash required may be less than buying.
• Easier to enter into and easier to get out of, if you decide that this business is not for you.
• Can deduct the lease payments as a business expense.

Leasing – the cons:

• May have to pay a “goodwill” amount. May also have to purchase the inventory that’s present in the store upfront.
• No control over the property. You may not be allowed to make renovations.
• No investment potential. You can’t enact upon the property’s value; you may not be allowed to sublease.
• The monthly payment is higher.

As with any major life decision, you should weigh your choices carefully. The decision of whether to purchase or lease your chosen business property is no different.

Hopefully, after scrutinizing your options, you can come to a conclusion that works best for you.