admin / June 24, 2021
What goes into considering a Lease versus Buy Decision
By: Lee Ellison, ALC
It’s a year out before your lease terminates and you need a new facility – do you lease or buy? Every business faces that tough question every few years and there are advantages and disadvantages to both. To help you evaluate what is best for you and your business, you must compare the economics of leasing vs. buying.
What are the advantages of Leasing?
- The monthly rent is a tax deduction as a business expense. By using rent as a tax deduction, you essentially deduct the improvements and the land.
- As a tenant you are not susceptible to changes in the market value with ownership in a downcycle.
- Freedom to move or sublease when your lease expires.
- No need to worry about selling if you need to move to another location.
- Your cash flow is important to you, especially in the beginning of a business.
- Your credit rating is not as important as compared to buying.
What are the disadvantages of Leasing?
- As a tenant you will face annual rental increases.
- The tenant will lose value on the improvements they have made to the premises.
- You will have to move at the end of the lease if no renewal is offered or you have outgrown the space.
- No opportunity to build equity.
What are the advantages of Buying?
- Interest on the mortgage is tax deductible. *
- You can take annual depreciation deductions on the Building Improvements / taxes .*
- Control your own rent.
- Appreciation of value over time.
- Excess space can be leased to allow time to grow into it.
- Any improvements to the premises are yours.
What are the disadvantages of Buying?
- Requires substantial capital to secure financing.
- A chance the property value may decline.
- Owner is subject to various legal and regulatory risks
- Owner has to spend time and energy on something this is not part of their daily business.
*Consult your CPA on the benefits of buying.
If you’re looking for a broker to help you with your lease vs buy decision or a financial analysis when considering either option, please email me, Lee Ellison at lee@cipaustin.com. I’d love to speak with you to see how I can be of assistance.
Want to learn more about other topics? Check out our Education Hub.
All information provided has been obtained from sources deemed reliable. However, neither CIP Austin nor any of its brokers, agents, employees, officers, directors or affiliated companies (collectively, CIP Austin and Related Parties) have made an independent investigation of the Information or the Information sources, and no warranty or representation is made by CIP Austin and Related Parties as to the accuracy of such Information. The Information is submitted subject to the possible errors or omissions, and no person or organization should rely on the Information, unless such person or organization has conducted and independent investigation to confirm the accuracy thereof.
« Previous Next »