When it’s time to add to your business’s real estate footprint—whether that’s a retail location, a warehouse, manufacturing facility, or an office—should you consider buying or leasing? The answer may depend on your vision and goals, as well as the financials of your business.
A few considerations when deciding between leasing and buying
Before you go too far into thinking about whether to buy or lease, you might want to outline your thoughts about the location, how your business will use it, and what you’re projecting in the years ahead. Here are some questions that you may consider:
- Time horizon: How long do you expect to be in the location? If your business is quickly growing, you may need to expand. If you’re experimenting with a new market and are uncertain of sales, what happens if you need to shift your location and move? If you’re confident that you’ll be in the same location for seven years or so, you may consider buying.
- Location availability: How quickly do you need it? If you need to be up and running within the next one to two months, you may consider leasing. In a more restricted geography, such as a downtown location, there may be more options for properties to lease than buy. In most cases, leasing may require less upfront money for the space, and it may be easier to qualify financially for a lease versus a purchase depending on your specific credit situation.
- Effort: Are you willing to take on maintenance? Depending on the type of lease, the duty of maintaining the property may fall on or is shared with the property owner. This may include maintenance and repair on everything from the building structure (foundation, roof, and walls) to HVAC, electrical, and plumbing, including sidewalks and parking lots.
- Control: Do you want control over additions or renovations? Buying puts you in charge of the property, whereas with a lease, you’ll likely need the approval of your property owner.
- Economic uncertainty: How worried are you about a recession or downturn in your local area? This may present a few risks. If your sales slump, your lease may offer you options to buyout, sublease, or assign the lease to another tenant—those options possibly could be easier than trying to sell a property in a down market. Do you expect property values in the area to appreciate? If so, owning the property might provide an additional investment opportunity for your business.
Things to consider about the math of buying versus leasing a commercial property
"A lease may require less cash flow than a purchase in the first few years, and it may leave you with financial flexibility for the future,” explains Zachary Sink, small business lending product manager at Truist. “However, over the long run, a purchase may be more attractive as your payments go toward building equity in your property and creating an additional asset for your business. If you want to capture the ownership premium and you don’t think it will distract you from running your core business, you may want to consider buying.
When should you consider buying versus leasing commercial property? First, consider making a business case of how the building fits into your growth plans. Then you may want to look at your business finances.
Consider using the Should I lease or own my business location? calculator to help in thinking about leasing or owning. For more information on borrowing, check out “Borrowing tips for your business.”
