Buy-Lease Comparison
Listen to our MSD President asking Commercial Realtors on whether you should buy or lease!
What is the right fit for your business?
When you buy a property, you begin to build equity in your property as time passes. This equity can also be used as leverage for other loans or lines of credit. However, in doing so it is required that you provide an initial capital outlay, potentially taking working capital away from your business.
There is no equity building within a leasing scenario. At the end of your lease agreement, you will have no ownership or entitlement to any of your lease payments upon the sale of the property. Additionally, the property cannot be leveraged for other financing options.
Buy
Lease
Equity
Control
In buying a building, you are the owner of the property. Within other contractual obligations of your lenders, you are able to do with your property as you please. The length of your occupancy is as long as you want it to be. There will never be unforeseen rent increases.
As a lessee, you have less control over the property. At the end of a lease period, you must abandon the location. Any improvement value that your business has put into the property is a loss to the business once occupancy has been terminated. There are many more contractual penalties and conditions to leases than through initial ownership. There is also the possibility for rent increases by the lessor.
Tax Purposes
Commercial real estate owners are able to deduct depreciation expenses from their building off their taxes. Additionally, the government incentivizes lending by allowing all interest payments to be tax deductible as well.
The rent from your building lease is considered to be a business expense and thus is tax deductible.
Mobility
There are some mobility restrictions for commercial real estate owners. Owners must hold the property for more than 5 years. Your business will be harder to upend and move if market conditions shift. There is the potential for the property to decline in value.
Mobility is the greatest strength of leasing. Leasees have the ability to relocate to new markets in little time, if needed. They have the freedom to sublet in order to move. In doing so, leasees avoid any decline in asset value of the building, but also miss out on any appreciation of that same property.