When it comes to commercial real estate, businesses have two options: buying or leasing. Each strategy has its own advantages and disadvantages, and the right choice depends on several factors.

Pros and Cons of Buying Commercial Real Estate

Buying commercial real estate can be a long-term asset that maintains its value over time. However, it also requires an upfront down payment and comes with potential liabilities.

Pros of Buying Commercial Real Estate

• Building equity: When a business buys commercial property, it builds equity in the property through the down payment and monthly payments. This equity can help increase the overall value of the business and can be used for refinancing or selling the property.
• Appreciating asset: Owning commercial real estate allows businesses to benefit from capital appreciation, which is the increase in the property’s value over time. The rate of appreciation depends on various factors such as inflation, local supply and demand conditions, and interest rates.
• Rental income: If a business has leftover space, it can rent it out to tenants to create a secondary income stream.
• Tax breaks: Businesses can deduct interest and depreciation on their commercial property as a tax break.
• Control: When a business owns property, it has control over it within the confines of zoning restrictions. This means they don’t have to negotiate with a landlord if they want to reconfigure the space and make fixed monthly mortgage payments instead of a rent payment that can be changed whenever a lease expires.

Cons of Buying Commercial Real Estate

• Upfront spending: Businesses typically need to make a down payment of 10% to 40% of the property’s value and pay for closing costs, origination, and appraisal fees.
• Difficulty qualifying for financing: Businesses may have trouble qualifying for financing due to the high upfront costs and the risk associated with owning commercial real estate.

If you are going to be at a location for more than 10 years and not planning to expand, it’s typically better if you have ample funds to buy vs lease. This is because owning commercial real estate can be a long-term asset that maintains its value over time, and you can benefit from capital appreciation, rental income, and tax breaks . However, it also requires an upfront down payment and comes with potential liabilities .

There are several other factors to consider when deciding whether to buy or lease commercial real estate. For example, leasing can be a good option if you don’t have the funds to make a down payment or if you’re not sure how long you’ll be in a particular location. Leasing also allows you to avoid the risks associated with owning property, such as maintenance and repair costs. On the other hand, buying can be a good option if you want more control over the property and if you’re looking for a long-term investment .

Synergy Real Estate Group, Corporate Advisory, Inc. is a national commercial real estate brokerage firm that exclusively represents corporations, medium-sized companies, and small businesses with their real estate needs. They can help navigate through the Lease vs Buy scenarios and help businesses make the proper decision. 

Lease vs Purchase Spreadsheet Analysis

A lease vs purchase spreadsheet analysis is a tool that can help businesses determine whether it’s better to lease or buy commercial real estate. The analysis compares the costs of leasing versus buying over a certain period of time, usually 5 to 10 years, and takes into account factors such as the cost of rent, the cost of financing, and the tax implications of each option ¹.

Here’s an example of a simple lease vs purchase spreadsheet analysis:  The analysis we complete is typically more sophisticated than this one.

In this example, the lease cost is $100,000 in the first year and increases by 5% each year. The purchase cost is $500,000 in the first year and decreases by 10% each year. The net cost is the difference between the lease cost and the purchase cost.

As you can see from the table, the net cost of leasing is higher than the net cost of purchasing every year. However, this doesn’t necessarily mean that purchasing is the better option. There are other factors to consider, such as the upfront costs of purchasing, the tax implications of each option, and the length of time you plan to stay in the space .

When it comes to deciding whether to lease or buy commercial real estate, Synergy can help you make the right decision. They can complete a Lease vs Buy analysis to help clients make the proper decision. This is a complimentary service that they offer to their clients .

Our team of seasoned corporate advisors has an average of over 20-30 years of experience representing Fortune 500 and Global 100 companies with their facility needs.

If you have any questions or need assistance, feel free to reach out to Synergy Real Estate Group, Corporate Advisory, Inc. We are always here to help .