Buying vs. Leasing a Commercial Space: Which is Best for Your Indoor Playground Business?

When it comes to finding a space for your indoor playground or play cafe business, there are two primary options: buying a commercial building or leasing a space.

Both options have their own set of advantages and disadvantages, and the decision will ultimately depend on your specific business needs and financial situation. 

This is one of those areas where the BEST option will depend solely on your specific circumstances, and I’d recommend hiring a local professional financial advisor and attorney to make the most informed possible decision. This will depend on your long-term goals, your credit score, your credit history, the amount of cash you have on-hand, and other factors.

In many areas, commercial spaces that are available to purchase can be few and far between. That means, even if you DO decide buying is the best option, you may not find a space that suits your needs.

However, don’t fret.

Many landlords, including the landlord we worked with for our play cafe business, will consider adding a “right of first refusal” clause in your lease agreement.

That means that, if they do decide to put the building up for sale during your lease, you as the tenant have the right to make an offer on the property first– before they are allowed to market it or accept other offers.

This can give you the option of purchasing your space even if you were not able to find a space to buy at the beginning, and can also help protect you against some of the downsides of leasing we will discuss, such as management changes and rent increases.

If you’d like some more information about negotiating your lease including some must-know terms you should know before beginning the process, I made a detailed (free!) video available here!

 In this article, though, we will explore the pros and cons of buying a commercial building instead of leasing.

Pros of buying a commercial building:

1. Long-term investment: When you buy a commercial building, you are making a long-term investment in your business. You will own the property, which can appreciate in value over time, and you will have control over the space.
2. Equity building: As you pay off your mortgage, you are building equity in the property. This means that you will have more assets to use for future business ventures.
3. Tax benefits: Buying a commercial building can offer tax benefits such as mortgage interest deductions, property tax deductions, and depreciation deductions.
4. Customization: When you own a commercial building, you have the freedom to make any necessary modifications to suit your business needs. This can include adding or removing walls, upgrading equipment, and more.
5. Rental income: If you have extra space in your commercial building, you can rent it out for additional income.

Cons of buying a commercial building:

1. Upfront costs: Buying a commercial building requires a significant upfront investment, including a down payment and closing costs.
2. Maintenance and repair costs: As the owner of the building, you are responsible for all maintenance and repair costs, including HVAC systems, plumbing, electrical, and more.
3. Market fluctuations: The value of commercial real estate can fluctuate with the market. This means that your investment may not appreciate as much as you had hoped or could even decrease in value.
4. Limited flexibility: When you own a commercial building, you are committed to that location. This can limit your flexibility to move to a more strategic location as your business needs change.
5. Management responsibilities: As the owner of the building, you are responsible for managing the property, including finding tenants, collecting rent, and handling any legal issues. 

Pros of leasing a commercial space:

1. Lower upfront costs: Leasing a commercial space requires a lower upfront investment compared to buying a building.
2. Flexibility: Leasing a commercial space offers more flexibility in terms of location and size. If your business needs change, you can easily move to a new location or expand your space.
3. Maintenance and repair costs: As a tenant, you are not responsible for maintenance and repair costs. These are the responsibility of the landlord.
4. Lower risk: Leasing a commercial space carries less risk than buying a building. If the business fails, you can simply walk away from the lease without significant financial repercussions.
5. Shared resources: In a leased space, you may have access to shared resources such as conference rooms, break rooms, and more.

Cons of leasing a commercial space:

1. No equity building: When you lease a commercial space, you are not building equity in the property. You are essentially paying rent to the landlord with no long-term return on investment.
2. No customization: As a tenant, you have limited control over the space. You may not be able to make necessary modifications to suit your business needs.
3. Limited control: When you lease a space, you are subject to the terms and conditions of the lease agreement. This includes restrictions on things such as signage, operating hours, and more.
4. Rent increases: Rent may increase over time, making it difficult to plan for long-term expenses.
5. Limited rental income: You are not able to rent out any extra space for additional income as the landlord is the one who is responsible for managing the property.

Again, when it comes time to make a decision, I would highly recommend consulting with a financial advisor and attorney who can evaluate your specific circumstances and make a recommendation. 

Let me know in the comments- are you planning to lease or buy?

If you would like hands-on help with expanding your business, regardless of the path you choose, I welcome you to join us inside of Play Cafe Academy and Play Maker Society using the link here!