This post originally appeared on tBL member Pam Pester's blog The Tenant Rep Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.
- Costs Remain Stable and Predictable – Leasing costs involve a predictable periodic outlay of cash. There are no surprise expenses.
- Flexibility to expand, contract and move.
- Source of Financing – Leasing provides 100% financing while most borrowing requires a down payment.
- Additional Tax Deductions – Lease payments are fully tax deductible and reflect rent paid for both the land and structures. An owner of real estate cannot deduct the land portion of the investment. In a triple net lease the tenant can also deduct operating expenses.
- Financial Flexibility– Leasing frees up cash that can be used to invest in the business for things such as inventories, salaries and equipment.
- Location – Leasing allows a tenant to be in a premier location that they might otherwise not be able to afford.
- Technology – Leasing allows a user to respond to technological changes more quickly by having the ability to quickly move to a more high tech building.
- Appreciation – Tenants cannot take advantage of property appreciation.
- Control – Leasing does not allow control of other tenants. In a multi-tenant property new neighboring tenants might not conform to the image the lessee is trying to project or may simply be “bad neighbors”.
- Cost – For a business with strong earnings, good access to financing and the ability to take advantage of the tax benefits of ownership, leasing is often a more expensive alternative. Individuals and small firms often find that the costs of leasing and buying are relatively equal.
- Alterations – The landlord may want to make cost saving alterations benefitting the landlord that may disrupt the tenant’s business.
- Operational Control – Tenants have no control over amenities, management personnel, etc.
- Equity – At the end of a long term lease a tenant walks away with nothing while an owner would have been building equity.
Any tenant considering whether to lease or purchase should consult a commercial real estate broker. A competent broker can perform a detailed lease versus buy analysis to assist the client in making the most cost effective solution.