Buying or Renting a Factory – Which is best?

07 April 2022

There are a number of important factors to consider when you are trying to decide whether buying or renting a factory is the best move for your business. In this article we’re going to explore these factors, ask some important questions, and try to determine which would be the best option for you. Read on to find out more.

 

The economics of renting Vs. buying a factory

One of the biggest advantages of renting a factory is the fact that your original outlay of cash intended to purchase an asset will typically be less for leasing than it would be for purchasing outright. That said, one advantage of buying is that you will ultimately end up paying less in the long term as you would if you lease. Additionally, if you do purchase you will get the added benefit of the potential appreciation in value.

 

One way of reconciling these factors is by doing an analysis of your net cash flows that would result from both purchasing and leasing a factory. In order to do so, you need to know certain facts such as:

  • What are the purchase and/or financing terms (including closing costs)?
  • What are the lease terms?
  • What is your overall income tax rate?
  • How long is the facility's expected life of usefulness (for depreciation purposes)?
  • What is the asset's estimated value both when you sell it or at the end of its life of usefulness?
  • The cost of capital.
  • Consider any other costs that you may incur if you leased rather than purchase the factory (and vice versa).

 

In this light it’s important that you not only think about the short-term implications of your decision, but also the long-term.

 

Things to consider when making the decision to buy or rent a factory

So, what other important factors should you consider when making the decision to buy or rent a factory? The following factors are geared toward purchasing, rather than renting a factory:

  • You’d like total control over the property in case you’d like to make substantial renovations. If you rent you will likely need to secure the landlord’s permission. However, when you own the factory you can do as you wish.
  • You are thinking about the long-term cost. Purchasing is typically cheaper over the long-term as you won’t have to pay any rental fees and additional profit premiums.
  • For many businesses the location of your factory is paramount. If you don’t want to give up this winning location, then owning the factory outright will give you the additional security you need.
  • You have otherwise been unable to find a suitable factory to rent and the only facilities that tick every box are available for purchase only.
  • You have found a particular area where land value is appreciating. If you own a property on appreciating land you can benefit from the increase in value, rather than renting it.
  • Purchasing the factory outright may bring you significant tax savings.

 

Similarly, let’s look at the following important factors from the perspective of renting a factory, rather than purchasing it outright:

  • Your current cash flow is important – particularly in the early years of your business development. Renting typically has less in the way of initial outlays allowing you to maintain your initial cash expense.
  • You don’t want the burden of maintenance duties. When you lease there are many opportunities to place the maintenance duties on the landlord instead.
  • You would like to retain your mobility. For example: the factory that you select now may not be suitable for your needs in the future.
  • The credit rating of your company doesn’t support a mortgage. Whether your business is new or you have experienced financial difficult in the past, lenders may restrict your credit for a mortgage.
  • You want to buy but you haven’t found a suitable space available and so renting the appropriate factory space is your only viable option for now.
  • The factory may be in an area that is declining in real estate value. You may have found a factory that suits your needs for now but you do not want to make a purchase if the property is likely to decline in value.

 

Conclusion

As you can see there are many different factors to consider when making the decision to rent or buy a factory outright. So, take your time and do plenty of research, consider the short and long-term impacts of buying and renting, weight up the pros and cons of each and make an informed decision as to which is going to be the best decision for your business at this time.

Related Topics
All

Shared

View more in blog

06.06.2024

Thai's Rating of Energy and Environmental Sustainability for New Construction

AMN-M1.7 Plot G702/20 (Ready-built Factory

21.03.2024

Logistics and Connectivity: The Strategic Advantages of Chonburi’s Industrial Estates

Strategically nestled in the heart of Southeast Asia, Chonburi's industrial estates boast unparalleled logistics and connectivity. They're a magnet for businesses looking to tap into dynamic markets. With state-of-the-art infrastructure, these hubs are transforming the landscape of regional trade.

21.03.2024

Bangkok Warehousing 2024: Adapt to Evolving Market Needs

Bangkok's warehousing market is undergoing a transformation as dynamic as the city itself. In 2024, the landscape is defined by rapid technological advancements and shifting economic currents. Businesses are finding that staying ahead means adapting quickly to these changes.

21.03.2024

Sustainable Practices for Modern Warehouses

In today's eco-conscious market, sustainability isn't just a buzzword—it's a business imperative. Modern warehouses are at the forefront of this shift, adopting practices that reduce environmental impact while boosting efficiency. They're proving that going green can mean more than just saving the planet; it can save on costs, too.

14.02.2023

Everything You Need to Know About Getting a Factory License in Thailand

On October 27th, the Factory Act came into effect, creating adjustments to aid factories in becoming more comfortable and adaptable in the market. According to this new act, a factory is define as a building, place, or vehicle with at least 50 employees or machinery with a total power of 50 horsepower or more. This marks a major change from the 1992 Factory Act, which set the criteria for 5-20 horsepower and/or 7-20 employees.

13.12.2022

How Smart Warehouses are Using IoT Devices

The world is changing, and the internet of things is at the forefront of this change. Businesses of all types are beginning to adopt IoT (Internet of Things) technology in order to improve efficiency and bottom lines.

28.10.2022

5 Factors to consider when choosing a location to rent a Factory

There are several points to take into consideration when choosing a proper location to rent a factory in Thailand. These Factors are important for the supply chain and logistical processes of your business therefore the next time you are renting a factory, do proper research and evaluate the options you have. This will affect all aspects of your business from branding, employee workflow to your customers' satisfaction. However, in order to make an informed decision, this article will run through the main points to get the best out of your factory rental.

28.10.2022

Factory for rent in Chonburi – Pros & Cons

Chonburi is located in the north-eastern part of Thailand. This province, located just about 64km away from Jomtien beach and 60km from Pattaya beach, is known as one of the most popular destinations among tourists for its beautiful beaches, natural beauty, cultural heritage, and friendly locals. It is also a good location for living with a lot of greenery, clean air, and fresh water.

28.10.2022

Warehouse and Warehousing - what is the difference?

Warehouses are associated with storing goods. Many businesses use these facilities to store their products, such as raw materials, packing materials, components, or unfinished goods until they are ready to be shipped to the distributor or manufacturer where it turns into finished goods.

28.10.2022

Warehouse for Rent in Chonburi – Pros & Cons

Chonburi is located in the north-eastern part of Thailand. This province, located just about 64km away from Jomtien beach and 60km from Pattaya beach, is known as one of the most popular destinations among tourists for its beautiful beaches, natural beauty, cultural heritage, and friendly locals. It is also a good location for living with a lot of greenery, clean air, and fresh water.

01.08.2022

8 Tips When Looking for Warehouse Space

If you are a business owner looking for a new warehouse space, it is paramount that you know exactly what you need before starting your search. First, you must do plenty of research and put together a solid plan of action. That way, when you do start looking at prospective warehouses, you can save time by instantly recognising which units are unfit to accommodate you, and which units should immediately be added to your shortlist of potentials.

07.07.2022

Built-To-Suit Warehouses are on the Rise, why Purpose built Warehouses and Factories make sense for Businesses

As e-commerce demand continues to grow, built-to-suit warehouses are becoming more and more popular. But what is a built-to-suit warehouse and why are they so valuable for e-commerce retailers and logistics companies alike? In this article, we’ll tell you everything you need to know!

22.06.2022

A Guide to Cold Storage Warehousing

Cold storage and transportation is what makes it possible to send fresh foods and medicine all over the world without the risk of unnecessary storage. If you’ve ever wondered how your favourite ice creams gets delivered to your local shop – that’s how!

12.05.2022

How AI and Automation Are Impacting Warehousing in Thailand

The impact of AI in warehouse automation has been revolutionary as it is leveraged across multiple multiple applications such as robotics, computer vision, and language processing tools to streamline warehouse operations. In this article, we’re going to look at how AI and automation are impacting warehousing in Thailand, and what it means for the future

07.04.2022

Buying or Renting a Factory – Which is best?

There are a number of important factors to consider when you are trying to decide whether buying or renting a factory is the best move for your business. In this article we’re going to explore these factors, ask some important questions, and try to determine which would be the best option for you. Read on to find out more.

08.03.2022

Why Warehouses in Asia are on the rise in 2022

Warehouses are in high-demand all across the world at the moment and in 2022 we’re only going to see that popularity rise even higher. But why is that? What’s with all of the hype and desire for warehouses right now? In essence, businesses (especially retailers) are running out of room to hold all of the items that we are ordering online.

03.02.2022

Advantages of Renting a Factory or a Warehouse

When business owners and entrepreneurs look to expanding their business operations, one of the biggest challenges is finding an appropriate factory or warehouse that can support and encourage future success.

14.10.2021

Good Manufacturing Practice (GMP) – What it is, what it covers and what the benefit are

In this article, we are going to explore GMP (good manufacturing practice), and what benefits it can bring to your business. As with any industry, in order to experience the highest levels of success, one must adopt the best practices in everything that you do, whether it be manufacturing, customer service, or hospitality. By gaining a thorough understanding of these ‘good practices’, you can optimize your business to function at peak performance, increase profits, and bolster your brand reputation. Let’s get stuck in!

14.10.2021

Supply Chain Challenges and how a Warehouse can take your business Forwards

There have always been challenges in the supply chain, and what with the COVID-19 pandemic, many of these issues have been exacerbated. In any case, as business owners are faced with new challenges it encourages innovation—which leads to some surprising ways to overcome said challenges. One thing that can really help drive your business forward and combat a number of supply chain issues is by investing in the appropriate warehousing. But, before we get into that, let’s look at some of the biggest problems faced and what might be done to combat them.

01.09.2021

Factory Rentals in Thailand - All you need to know

Are you looking for factory rentals in Thailand? If so, then you may be feeling a little overwhelmed at the task; trying to find the ideal premises in a strategic location, and for the right price. But don't panic! It's not as difficult as you might think, particularly when you do your research.

11.08.2021

Warehouses in Thailand – What you need to know.

Whether you are a new business owner looking to expand, or you are long-established and simply need to upgrade, having a warehouse comes with a great number of benefits. As someone who is unfamiliar with warehouses or is perhaps looking at them for the first time, then you’ll need to plan your approach with careful consideration.

02.08.2021

Warehouse Security and our approach to Dangerous Goods Warehousing

A large explosion and fire destroyed the Ming Dih Chemical factory compound that had been producing plastic foam and pellets in Tambon, Rachatewa, causing extensive damage to the surrounding communities, earlier this month in July 2021.