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Owning vs Leasing - Which is right for you and your business?

  1. Would you rather own a property or pay rent to a landlord?

  2. Do you think that the Colorado and Broomfield property market will appreciate in price in the future?

  3. If you do intend to buy a property, is it built to last? Or will it need substantial amounts of money in the future to correct functional obsolescence, inherent design flaws, or simply to remodel the building to keep up with the times.

  4. Do you want to pass an asset to your heirs?

  5. Is your business fairly stable?

These are just some of the questions that you need to ask yourself, and hopefully your tax and financial adviser as well, before you decide to purchase or lease a commercial building.  If you look back at almost any area of the country, not just the rapidly appreciating ones, over the last 25 years you definitely wanted to be a property owner. With current bank financing rates at a historically low level, the Colorado market in a continued upswing and with very little inventory available to purchase in the 10,000 to 15,000 sq ft size, Northwest 36 offers an excellent opportunity to own in a market that has proven value appreciation.
 

A quick example of representative financing ownership costs for a brand new 11,434 sq. ft. building in ‘warm’ core and shell condition with a sale price of $3,684,800 (pre-sale price only).

 

Purchase:

  • Purchase price: $3,684,000

  • 15% SBA loan down payment:  $552,720

  • Financing $3,131,280 at 5% monthly payment (P&I only):  $18,305.20

Lease - In order to lease the same building:

  • Lease rate: $20 per foot

  • Monthly lease payment (not including NNN expenses, tax, etc):  $18,666.66 (assuming no rent increases ever)

In both cases NNN expenses, taxes, etc will be passed equally to the tenant or owner so we can remove them from analysis. The same goes with any tenant build-out necessary except that the landlord will require some return for any capital they spent on the tenant improvements in the form of a higher lease rate.

 

So the question is really one of do you want to pay yourself or a landlord?

 

With a 25 year SBA loan, in ten years you would have paid off approximately 26% of the building and have that value in equity (again, assuming real estate prices never increase, if they do, you may have a LOT more).  In 25 years, you own it 100%

 

So even at a nominal annual appreciation rate for property of 3% per year, in 25 years the property is worth $7,713,478.


Some additional reading on the subject:

 

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