The decision to buy versus lease of commercial space often hinges on the alternative uses of capital. If you are receiving a 20% return investing in your business and only 10% investing in a building, the choice is obvious.
Most companies lease because their return on investment in their business is substantially greater. Also, leases offer flexibility. They are limited in duration and liability. Leases more easily accommodate a businesses’ life cycle. If a company has a relatively fixed size, and flexibility is not a concern then owning is worth considering.
Oftentimes, the owner of a privately held business invests their personal capital in a building and then leases the building back to the business. This allows the owner to benefit from favorable tax treatments, depreciation and mortgage deductions, etc. The owner also controls the tenant providing a secure rental stream.
Businesses buy if they are making large capital investments in the property and its infrastructure. Large capital costs make the cost of moving expensive and gives the landlord undue advantage when renegotiating a lease thus favoring a purchase.
Nonprofits have similar considerations, but have the additional benefit of not having to pay real estate taxes.
Thinking about buying (or leasing), call us.