When a company has the option of purchasing a property or leasing, a Lease vs. Purchase Analysis must consider three main considerations: Opportunity Cost, Cash Flow, and Risk.
Opportunity Cost relates to the alternate choices given up because the tenant decides to purchase. Because of the need to apply available cash to the down payment, typical Opportunity Costs are a decrease in personnel, marketing, inventory, and equipment. If the business owner can make higher profits using the cash differently, then that factor must be taken into consideration.
Most businesses run on and are valued based on Cash Flow. It would be unfortunate if a business owner purchased a property because of $100k in expected property value increase, and then lost $500k in the sale of the business because of reduced sales volumes caused by reduced inventory, equipment, training, plant modernization, etcetera.
Third, Risk is an integral part of owning property. Are values increasing or declining? If they are increasing currently, will they continue to increase over the life of the investment, and will the property be worth more than the amount invested? What are the chances of your business needing to expand, contract or relocate? Are these made easier while renting or owning?
Each business has vastly different circumstances relative to the three main considerations of Opportunity Cost, Cash Flow, and Risk; however, a commercial real estate broker can project your business’s eventual re-sale price, costs of sale, mortgage principal reduction, tax bracket, etcetera. Your broker can calculate leasing vs. purchase options, including considerations of property taxes, insurance, maintenance, down payment and security deposit, appreciation, net costs of leasing vs. net costs of purchasing, not to mention the all-important site selection.
Michael Coretz – with over 25 years as a local commercial real estate broker, retaining national and international networks – possesses expertise in representing business owners during site selection, relocation negotiations, and lease vs. purchase analysis. Whether leasing or buying, Michael Coretz of Commercial Real Estate Group of Tucson will ease your decision-making and protect your bottom line.