To Lease or Purchase? It is time to take advantage.
In order to stimulate economic growth by encouraging borrowing and investing, the Federal government has recently lowered interest rates to all-time lows. Let’s take a hypothetical but realistic example of why every business owner should consider taking advantage of this opportunity.
A business owner has identified a building that is available for purchase or lease. The building is 22,000 SF and fits all their requirements. The building can be purchased for $1,000,000 or can be leased for $5 SF Industrial Gross. So, the rental rate would be $9,166.67 per month. On an SBA Loan, the rate would be 2.80% so the amortizing payment on a 20 year term is $4,902 a month. Your taxes, insurance, and maintenance would be an additional $1,250 a month so your all in $6,152 a month. Your down payment is just 10% or $100,000. If you do not qualify for an SBA loan, traditional commercial banks are offering 4% rates and 20% equity down. So, using the same deal above, the amortizing loan would be $4,848 a month plus $1,250= $6,098 monthly payment. So roughly the same as the SBA loan, except you must put $200,000 equity down.
|Lease||Purchase ($1M) SBA Loan 20 yr||Purchase ($1M) Traditional Loan 20 yr|
|Security Deposit Equity Down||$0||$100,000||$200,000|
In my career I have never seen such a discrepancy between leasing and owning. If you purchase this building instead of leasing, you will save over $3,000 a month. Additionally, the same benefits of owning verse leasing still exist. You build equity every month that goes on your balance sheet. There are tax benefits for the property owner such as deduction on interest and depreciation. You now have an appreciating asset. You have the opportunity to purchase a building that is bigger than you need and make some extra rental income. Lastly, you have full control to do whatever you want. If you are in a lease and have interest in owning a building, please give us a call. We can help you take advantage of an incredibly special opportunity.