In my real estate practice, my focus is on helping the occupiers of office and industrial space. While most are tenants, I also help companies by buildings and commercial condos. And because the best choice is not always obvious, we perform a Lease vs. Purchase analysis to aid in that decision.
Here are four key considerations in determining whether to lease or buy:
- Your Cash Position. An important factor to consider in making your lease vs. buy decision is your cash position. If you are in a strong cash position that always makes purchasing real estate easier. However, with programs like the SBA 504 and 7A, you can purchase space you would occupy for as little at 10% down.
- Expansion Plans. Another important consideration is the expansion plans for your business. Everything else being equal, relative stable facility needs favor purchasing, while fluctuating space needs favors leasing.
- Return on Investment. Is the return you can get on capital you use to purchase your facility as great or greater than you can get by placing that capital in expanding your core business? Assuming you are relatively capital constrained, you need to be careful about tying up capital (both debt and equity) in real estate that could achieve a higher return being invested in your core business.
- Market Conditions. What is the supply of commercial real estate for purchase in your area? In Boulder County right now we are fortunate to have a greater supply to pick from than in past years do to the softness of the market and the arrival of several high-quality commercial condo projects to the market. Lastly, what is the interest rate environment? Currently, it is very attractive to be a borrower.
If you are thinking about leasing or purchasing commercial space in the next 18 months, give us a call so we can help you determine your alternatives and the best course for you.
In closing, our goal at TenantWisdom is to help our clients make the best business decisions, and get the best deals achievable in leasing or buying commercial real estate. If you know have a friend or colleague who would benefit from this newsletter, please forward this on to them. If you are a Facebook, YouTube and/or LinkedIn user, please click the links below and connect with me there.