The Hidden Cost of Owning vs. Leasing: What Most Business Owners Miss
For
years, I’ve helped business owners wrestle with one of the biggest decisions
they’ll ever face about their real estate: Should we buy our building or lease
it?
At
first glance, ownership might seem like the obvious winner—build equity,
control your destiny, no landlord breathing down your neck. But like most
things in commercial real estate, the decision isn’t black and white.
What
many people don’t see right away are the hidden costs—financial, operational,
and emotional—that come with each option. Here’s what I’ve learned over the
past four decades.
Opportunity Cost: Where Is Your Capital Working Hardest?
Buying
a building—even through an SBA loan with just 10% down—still requires capital
that could be deployed elsewhere. That down payment, along with closing costs,
reserves, and possible improvements, can total hundreds of thousands of dollars
even on a modest acquisition.
Takeaway:
The money you tie up in real estate could be your most expensive investment if
it limits your flexibility elsewhere.
Monthly Cost: Lease vs. Mortgage Isn’t Apples to Apples
Many
business owners compare lease rates to monthly mortgage payments and assume
that ownership is the better deal—especially if mortgage payments appear lower
than quoted lease rates. But that comparison misses critical details.
In
today’s market—where interest rates remain elevated and property values are
still adjusting—the cost of ownership is often more expensive than leasing. And
the difference is even more pronounced when you factor in all the additional
expenses:
• Debt service (principal and interest)
• Property taxes
• Insurance
• Repairs, maintenance, and capital reserves
(think roof, HVAC, plumbing, parking lots)
Even
with SBA financing—which only requires 10% down—these costs add up quickly and
can exceed comparable lease obligations.
And
let’s not forget: most industrial leases today are structured as triple net
(NNN) leases, meaning tenants pay base rent plus property taxes, insurance, and
maintenance.
So if
you’re comparing a lease rate to ownership, you must also account for the fact
that those same costs will be your responsibility as an owner—on top of
your mortgage.
Finally,
SBA loans often come with variable interest rates after a fixed period,
introducing future financial risk. And rising insurance premiums and
unpredictable tax assessments only add more volatility.
Lease Flexibility Can Be Strategic
Leasing
doesn’t mean “wasting money”—it means buying flexibility. If your company is
growing, shrinking, or evolving, locking yourself into ownership may actually
become a constraint.
Leases
allow you to pivot: to sublease, renew, relocate, or negotiate tenant
improvements. And in many cases, those improvements are paid for by the
landlord, not out of your own pocket.
Takeaway:
In a rapidly changing market, the ability to adapt might be worth more than a
locked-in mortgage rate.
Asset Appreciation Is Not Guaranteed
Many
people view real estate ownership as a no-brainer because of “appreciation.”
But just like with any asset class, there are cycles. Industrial property in
Southern California may have doubled in value over the past decade—but not all
markets or building types are created equal.
If your
business is relying on future appreciation to justify the purchase, you’re
speculating, not just investing.
Takeaway:
A good business decision should pencil out even if the
building never appreciates.
Final Thoughts: The Right Answer Depends on the Right Questions
I’m not
here to argue for or against ownership. I’ve advised clients to buy when it
made sense—and advised others to lease when that fit. But too often, the
decision is made emotionally or simplistically: “I hate my landlord” or “I want
to build equity.” That’s not enough.
What’s
your growth trajectory? How much capital do you need to keep liquid? How long
will this facility serve your needs? What are your exit plans?
Owning
vs. leasing isn’t just a real estate decision—it’s a business strategy. One
that deserves more than a gut feeling.
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