Buy or Lease a Commercial Building for a Start-Up

Should a start-up buy or lease a commercial building?

New businesses are always a gamble. A safe bet is to limit the amount of up front costs, such as commercial real estate. That’s why I think you should NOT buy a building when you are just starting out. During the start up phase of your business you need to test the demand for your product or service before you commit to the large cost of owning commercial real estate.

You have no idea if your business is going to be a success. Investing in real estate ties you to the property and the related management costs. Psychologically, you will feel that the property and business is a single unit due to building ownership. It may make you less likely to give up on a business that is not turning a profit because you feel tied to the property.

Wait one to two years after you start a business before committing to a permanent location. You may decide that you want to move to a different location, which is also easier to do if you are leasing. Keep the start up costs as low as possible when you are just starting out to increase your chances of success.