Buying vs. Leasing Commercial Real Estate
How do you know if you should lease or buy for commercial use? It can be a very complicated decision. Our team has experience in both owning and leasing commercial property, so we are prepared to work with you through the entire process.
Factors to Consider
- Length of Stay
One of the first things you need to consider is how long you plan to be in your location. The longer you plan to stay in one place, then the more it makes sense to buy.
- Size of the Space
Another factor to consider is the size of the space. If you need a larger area, then leasing might be advantageous to save on upfront costs. Purchasing will require a 20–25% down payment. Are you prepared to invest this in your space, or are these funds going to be needed to operate your business?
To give a fairly simple example of what it might cost to buy, let’s consider a hypothetical 2,800 square foot condo office space at $225/square foot.
2,800 square feet x $225/square foot = $630,000
20% down = $126,000
Mortgage = $504,000
$500,000 x 4.5% interest for 20 years
Payment $3,163.25 per month or $37,959.00 per year
Final Cost: $13.56/square foot/year
If you’re renting for about $18/square foot/year, then you can see it could be advantageous to buy instead. Keep in mind other factors as well, such as condo fees, maintenance, taxes, utilities, and depreciation.
Making the important business decision of whether to buy or lease requires the advice of several different professionals. Consider working with experts in the field, such as:
- An accountant: to assist with analyzing your individual tax benefits
- An attorney: to work through the legal ramifications
- A real estate team like Streett Hopkins that is knowledgeable and experienced: to assist you in locating and analyzing the right property for your needs
For More Information
For more details on this topic, please refer to these articles:
- Buying vs. Leasing Commercial Real Estate
- How to Lease Commercial Real Estate
- Is the CRE Future Bright?
- Commercial Leasing Glossary (PDF, 22 pages)
We also welcome you to contact us to discuss the process and what’s best for your company.