Pros and Cons between Buying and Leasing Industrial Buildings
By Editorial
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.
https://blog.frontierindustrial.mx/compra-renta-naves-industriales-pros-cons