Lease VS Own?
Occupancy Costs
Occupancy costs are one of the largest operating expenses for businesses. Buying a building for your business allows you to secure these costs and avoid the instability that comes with rent increases and moving.
Some factors to consider when comparing the two options:
- Owning costs more up front, but typically costs much less over time.
- Being your own landlord gives your business a permanent home and offers stability.
- The low down payment required with SBA 504 financing allows you to keep working capital to put back into your business.
- Mortgage payments are often lower than or similar to lease payments.
- Owning your building allows you to build equity and benefit from the building’s appreciation over time.
- Owning can give you the option to lease any extra space your business is not occupying, offsetting your mortgage payments and occupancy costs.
- The equity you build from owning can provide security in retirement.
- There are tax advantages to owning.
See Your Options Side-by-side
If you’d like a custom lease vs. own comparison to see your options side-by-side
The following example comparison is based on a 10,000 square foot building:
| OWN | LEASE | ||
|---|---|---|---|
| Purchase Price | $2,000,000 | Monthly Lease Payment | $20,000 |
| Renovations | $0 | ||
| Other Costs | $0 | ||
| Total Project Cost | $2,000,000 | ||
| Property Square Footage | 10,000 | Property Square Footage | 10,000 |
| Total Price Per Sq. Ft. | $200 | Total Price Per Sq. Ft. | $2.00 |
| OWN | |
|---|---|
| Purchase Price | $2,000,000 |
| Renovations | $0 |
| Other Costs | $0 |
| Total Project Cost | $2,000,000 |
| Property Square Footage | 10,000 |
| Total Price Per Sq. Ft. | $200 |
| LEASE | |
| Monthly Lease Payment | $20,000 |
| Property Square Footage | 10,000 |
| Total Price Per Sq. Ft. | $2.00 |
UP FRONT COSTS
| OWN | LEASE | ||
|---|---|---|---|
| Down Payment (10%) | $2,000,000 | Prepaid Rent (2 Months Rent) | $40,000 |
| Estimated Bank Fees (1% of Loan Amount) | $0 | Prepaid Rent (2 Months Rent) | $20,000 |
| Estimated Report Costs (Appraisal & Environmental) | $0 | ||
| Total Cash Required | $2,000,000 | Total Cash Required | $60,000 |
| OWN | |
|---|---|
| Down Payment (10%) | $2,000,000 |
| Estimated Bank Fees (1% of Loan Amount) | $0 |
| Estimated Report Costs (Appraisal & Environmental) | $0 |
| Total Cash Required | $2,000,000 |
| LEASE | |
| Prepaid Rent (2 Months Rent) | $40,000 |
| Prepaid Rent (2 Months Rent) | $20,000 |
| Total Cash Required | $60,000 |
MONTHLY COST
| OWN | LEASE | ||
|---|---|---|---|
| Mortgage Payment | $11,116 | Lease Payment | $20,000 |
| Insurance & Property Tax | $2,167 | ||
| Repairs, Utilities, Maintenance | $4,000 | ||
| Depreciation Write-Off | ($3,205) | ||
| Lease Income (if not 100% owner occupied) | $0 | ||
| Total Monthly Costs | $14,077 | Total Monthly Payment | $20,000 |
| Monthly Costs Per Square Foot | $1.41 | Monthly Costs Per Square Foot | $2.00 |
| OWN | |
|---|---|
| Mortgage Payment | $11,116 |
| Insurance & Property Tax | $2,167 |
| Repairs, Utilities, Maintenance | $4,000 |
| Depreciation Write-Off | ($3,205) |
| Lease Income (if not 100% owner occupied) | $0 |
| Total Monthly Costs | $14,077 |
| Monthly Costs Per Square Foot | $1.41 |
| LEASE | |
| Lease Payment | $20,000 |
| Total Monthly Payment | $20,000 |
| Monthly Costs Per Square Foot | $2.00 |
FORECASTED OWNERSHIP BENEFITS
| OWN | LEASE | ||
|---|---|---|---|
| Monthly Mortgage Payment in 10 years | $11,116 | Monthly Lease Payment in 10 years | $26,095 |
| Equity After 10 Years | $1,194,592 | Equity After 10 Years | $0 |
| Cash Savings After 10 Years | $891,296 | Cash Savings After 10 Years | $0 |
| OWN | |
|---|---|
| Monthly Mortgage Payment in 10 years | $11,116 |
| Equity After 10 Years | $1,194,592 |
| Cash Savings After 10 Years | $891,296 |
| LEASE | |
| Monthly Lease Payment in 10 years | $26,095 |
| Equity After 10 Years | $0 |
| Cash Savings After 10 Years | $0 |