Lease vs own
Lease vs. own the building: how to decide?
When it comes to finding space to house your business, one of the biggest decisions you face is whether to lease or own the building. Would you be better off writing that rent check to yourself?
There are a number of factors to consider when deciding between leasing vs. owning:
- Leasing has a lower up front cost, but can cost significantly more over time.
- You can own for as little as 10% down with the SBA 504 program.
- Often, monthly payments for leasing vs. owning are quite similar.
- With owning, you benefit from the building’s appreciation; with leasing, your landlord gets the benefits.
- Owning your building can give you the opportunity to lease any unused space, lowering your occupancy costs.
- The equity you build from owning your building can provide a comfortable retirement.
- Owning your building has tax advantages that leasing doesn’t.
To compare the costs and benefits of leasing vs. owning, contact our experts for a no-cost, custom lease vs. own comparison.
Lease vs Own Building Example Scenario
Property Square Footage 10,000 sf
| Own | |
|---|---|
| Purchase Price | $2,000,000 |
| Improvements | $0 |
| Other | $0 |
| Total Project Cost | $2,000,000 |
| Total Price per Sq. Ft. | $200.00 PSF |
Start-Up Costs |
||
|---|---|---|
| Cash Down Payment | 10% | $200,000 |
| Estimated Bank Fees | 1.00% | $10,000 |
| Estimated Appraisal & Environmental | $5,000 | |
| Total Cash Required | $215,000 | |
Monthly Costs |
||
|---|---|---|
| Mortgage Payment (monthly) | $1.09 | $10,946 |
| Taxes | $0.01 | $1,800 |
| Insurance | $0.02 | $200 |
| Monthly Expenses | $0.40 | $4,000 |
| Total Monthly Payment | $1.69 PSF | $16,946 |
Total Adjusted Monthly Costs |
||
|---|---|---|
| Total Monthly Payment | $1.69 | $16,946 |
| Less Depreciation | ($0.34) | -$3,419 |
$13,527.61 |
$1.35 PSF |
Forecasted Ownership Benefits |
|
|---|---|
| Monthly Mortgage Payment in 10 years | $10,946 |
| Cash Savings After 10 Years | $1,079,323 |
| Equity After 10 Years | $1,165,254 |
Assumptions: Depreciation est. at 80% allocation of purchase price. Future mortgage rate assumes fixed-rate 1st mortgage. Cash savings est. based on fixed mortgage payments vs. appreciated lease payments less additional start up costs to purchase. Equity assumes 2% annual building appreciation.
| Lease | |
|---|---|
| Monthly Lease Rate | $20,833 |
| Lease Rate per Sq. Ft. | $2.08 PSF |
Start-Up Costs |
||
|---|---|---|
| Prepaid Lease | 2 Months Rent | $41,667 |
| Security Deposit | $10,000 | |
| Total Cash Required | $51,667 | |
Monthly Costs |
||
|---|---|---|
| Lease Payment | $2.08 | $20,833 |
| Total Monthly Payment | $2.08 PSF | $20,833 |
Total Adjusted Monthly Costs |
||
|---|---|---|
| Total Monthly Payment | $2.08 | $20,833 |
$20,833.33 |
$2.08 PSF |
Forecasted Cost of Continuing to Lease |
|
|---|---|
| Monthly Lease Payment in 10 years | $27,183 |
| Cash Savings After 10 Years | $0 |
| Equity in 10 Years | $0 |
Assumptions: Assumes annual lease rate increase of 3%.
