Pros and Cons between Buying and Leasing Industrial Buildings

By Editorial

Ciudad de México

June 13, 2022

Buy an Industrial Building or Lease it?

 When a manufacturer or transnational company wants to expand operations in Mexico, they can decide between buying and leasing an industrial facility.

The decision between acquire or lease depends on variables that involves business strategy and, economic factors, also the type of market and the country offers. Below we review the pros and cons of each alternative.

 Advantages of buying an Industrial warehouse

•           Long-term / capital option: the owner has the freedom to sell or use the facility  as financial support for his business.

•           Possibility of subletting: Common practice when a company that owns an Industrial warehouse does not use 100% of the property, it can lease the space and  have a secondary source of income.

•           Total control of the property: as the owner, the company does not need to negotiate with any administrator or developer of the industrial park.

•           Tax deduction: owners can receive tax deductions as part of the incentives of the state or municipal government in order to attract investment.

 Disadvantages of Buying an Industrial warehouse

•           Important Investment: during the purchase , finance obligations, taxes, as well as Due Dillingences  and legal expenses must be covered , in addition to the facility purchase cost.

•           Regular maintenance expenses: maintenance and repair costs will be responsibility of the buyer, which involves more cash flow.

•           A passive resource:  being a dedicated resource,  may reduce liquidity and Cashflow.

• Need to take out insurance: regardless of whether you use the property for your plant or sublease space, you must take out third-party damage insurance.

Advantages of leasing an industrial buildings

•           Liquidity:  by not having to pay a down payment or maintenance costs for the building, the company has more cash flow and financial resources available.

•           Flexibility for relocation: if the company have a quick growth, there is always the option to move to another facility within a defined period of time.

•           Fixed monthly costs: With a leasing contract, the company have certainty of the monthly expenses.

•           Ease of obtaining permits : If you choose an specialized developer, with a class A building structure such as Frontier , the tenant company only covers the contract costs, forgetting of all construction permits and requirements.

Disadvantages of leasing an industrial buildings

•           Does not generate incomes: Tenant does not receive income or benefits from the property appreciation.

• You do not have control of the property: the lease agreement may include restrictions, renegotiation clauses or charges for early termination.

 Conclusion: buy or lease an industrial building?

For foreign companies that require a temporary space –due to an increase in the demand for products or because they belong to a distribution chain–, the lease of industrial building will be the best option, if you want:

To have the flexibility to change locations at the end of the lease.

• Maintain your cash flow.

• Avoid additional maintenance costs.

• Operate in a market without purchase options and/or availability.

If the availability of cash is enought for the down payment and 6 months of principal costs without affecting the companies cash flow, there are three reasons that make sense of buying an industrial building:

• You will use only part of the space and may rent the rest for a secondary source of income .

• Plans to generate added value  in the property.

• It will generate leverage capacity in the future, placing the property among the assets.

At Frontier Industrial we have the flexibility to adapt to the particular needs of each client. We lease  "Class A" industrial buildings, with top quality construction standards, and we customized any type of warehouse for what your operation requires.

Share this post: