Lease-option in the commercial real estate world is uncommon, but not unavailable. This option may work well for many business owners, although many are unaware that it even exists. New start-ups particularly benefit from the lease-option purchase, although even long-term business owners can benefit from the deal.
Starting a small business comes with a plethora of expenses. Once you sign a year lease, you must pay the monthly rental amount plus purchase equipment and supplies, hire employees, and so much more. Buying property without an option payment can seem impossible to a new business owner.
Buying a property requires a real estate investor or agent, a huge down payment, and good credit. If you do not have that right now, perhaps the tenant-buyer option is a good idea. This option gives you time to build your credit and save money to use as a down payment while providing space to operate the business. Sign the lease agreement after arranging a purchase agreement that works best for your needs. The lease term may range from one year to three years.
There are many reasons why renting a property is not ideal for businesses in the long term. Some of those reasons include:
- The landlord can refuse to renew the lease
- Avoid becoming trapped in a long lease
- The landlord can raise rental monthly payments because they expect you to leave
- The landlord may sell the property to another owner who renovates the space
- No chance to build equity
Consider the lease option if you dislike the thought of the problems above taking place while renting a property. Under a commercial lease with a purchase option, you avoid headaches and become a property owner sooner.
Related: Learn more about Property Taxes
Commercial Rent to Own Advantages
Rent To Own is great for new businesses. This option gives you time to save up money to use as the down payment and improve your credit while still providing a space to work from as a renter. You’ll have time to earn a profit before time to buy the property, making the deal easier. You have time to grow your business and better acquaint yourself with the process of operating a new business. Most landlords sign three-year rental contracts but this differs with each person.
Commercial Rent to Own Drawbacks
Disadvantages of utilizing commercial rent-to-own exist, although fewer than the advantages. Some of those drawbacks include:
- If the business does not succeed, you may lose your money and chance of purchasing the property
- May be unable to afford monthly rent if the business is not successful
- You may no longer want to buy the property if the business flops
- You may not get approved for the loan to buy
- If you do not buy the business, then you lose the option fee and premium payments you’ve made on the property
- You may need to obtain/pay for legal advice from an attorney
The drawbacks of utilizing rent-to-own usually do not hold business owners back from taking the next step toward property ownership. However, each situation is unique. Weigh the pros and cons of rent-to-own to make sure that it works for your needs.
When to Rent to Own
Rent to own works well for new startups and business owners searching for a great deal. Start off making rent payments then when you are ready, exercising the option to buy allows you to become a property owner. Why settle for being a business owner when you can be both?
Find an awesome property that has been sitting on the market for some time for the best shot at a rent-to-own deal.
Related: Learn more about Rent to own VS Rent