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Buy or Lease?

Alerus | SEP 24, 2018

To Buy or Not to Buy, that is the (Business) Question

Unless your business is of the home office or garage variety, you’re going to need someplace to actually do business. Big or small, whether it’s a storefront, warehouse, factory or office, the same question comes up for every business: Should we buy or lease space?

Don’t go it alone – talk to someone with experience in commercial real estate. There are a lot of things to consider and a lot of moving parts. Here are a few good starting tips:

  • Find the right space, then figure out how to get into it. 
    Location, features and footprint are critical for success too. Someone with experience in your market and with your type of business can help you weigh ALL the important factors. The right price won’t do you much good if the space doesn’t help you succeed.
     
  • Consider your budget today and in the future.
    Buying costs more up front, leasing has higher monthly costs. A typical down payment for a business property is 25%. Through an SBA 504 loan program, that may be reduced to 10% if all conditions are met. Even that can be a significant hurdle, so if you don’t have that kind of money available, a lease may be a better option.
     
  • Think about your need for flexibility.
    Planning to expand? Evolve? Install new equipment? The more you can think ahead, the better choice you can make. If you plan to move a lease can be easier to manage; if you want to add on or knock down walls, you might want to own the property.
     
  • Consider all expenses -- including the cost of your time.
    Rent or mortgage are just part of your cost. Most leases are “triple net” and have taxes, insurance and maintenance added – so even if the rent doesn’t change, your monthly cost might. If you buy, you are responsible for everything. Budget more of your time if you plan to do maintenance yourself.
     
  • Examine the effect on your balance sheet and taxes.
    Owning is an investment, but also comes with risks. If you can buy, you can gain equity in the property itself, and more of your expenses can be written off come tax time. But you’re on the hook if the value of the property goes down.

In summary, there is no right or wrong answer when it comes to leasing or buying – as always, it depends on your unique situation. Moving into new digs should be exciting. Whatever you decide, work with a professional who really understands your needs so you get into a space that lays a foundation for your success.

The content available on this site is provided for informational purposes only, is not intended as an offer or solicitation for the purchase or sale of any financial instruments and should not be relied upon as an investment recommendation. Alerus Financial, N.A. and its affiliate subsidiary companies make no representations or warranties as to the accuracy, completeness or timeliness of the information. The information is not intended to provide legal or tax advice. Individuals should consult a qualified legal or tax advisor for advice specific to their circumstances.
 

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