Control of the Property. Property owners have control over decision-making
for additions and/or renovations. This
includes operating factors, including
hours of operation, and other essential
decisions related to the business owner’s
customer base needs.
Additional Income. Businesses with
long-term growth plans may consider
buying buildings with income stream
potential, through third-party tenant
leasing. Buying a larger property than
what the business needs at this time
allows a business owner/building owner
to capitalize on future growth considerations by subsidizing current vacant space
with tenants, gaining lease income in the
Tax Factors. Property owners can capitalize on additional tax benefits, including deducting loan interest, property
taxes and other qualifying expenses.
Additional tax strategies may be considered, including forming an LLC to act as
property owner and leasing space to the
Appreciation. One of the primary goals
of buying a building is to generate a
long-term increase in value through
market appreciation. Tenants do not see
the benefit of appreciation, as their
monthly rent expenditure does not go
toward ownership/building equity.
An example of an own versus lease
scenario can be seen above. This example assumes the acquisition of a 5,000
square foot building, at $80 per square
foot, 10 percent down payment, and an
SBA loan amortized over a 20-year period, at 4. 5 percent.
This is compared to the lease of a
building of the same size, at $15 per
square foot, full service.
The monthly effective cost, if purchased, is approximately $3,000, versus
$6,000 effective cost if leased. Under
this scenario, a property owner could
save 43 percent in monthly cost by owning their office/facility. In addition, a
building owner has the extra added benefit of building equity ( 29 percent in
equity, assuming an annual appreciation
of three percent per year).
Cash Outlay. If you purchase a building,
you typically can expect to make a down
payment of between 10 percent and 25
percent, depending on the lender and
your credit. There are numerous options
for Small Business Administration (SBA)
loans as well as conventional loans these
days. SBA loans require as little as 10 percent down. With historically low interest
rates, a business owner/building owner
generally ends up paying less in monthly
payment/maintenance costs, versus leasing a facility.
Fixed vs. Variable Cost. Property owners with fixed-rate mortgages and a good
grasp of their management costs have
a solid understanding of their long-term
costs. Tenants are susceptible to market
fluctuations when their lease term expires.
The economics of owning versus leasing should always be at the forefront of this decision, along with several other factors examined here.
OWN OR LEASE? —continued from p. 36