Lease vs. buy your business building: a 10-year comparison
By Francisco Williams, CCIM · CCIM · Executive Vice President, Williams Capital Advisors · CalDRE #01979442 · Updated
Short answer
Owning your building can cost more in the early years and less over a long hold, because loan principal builds equity and the property may appreciate. Leasing keeps capital in the business and gives flexibility. The answer turns on how long you'll stay, how much cash you can tie up, and how stable your space needs are.
Start with the business, not the building
If the business may need twice the space in three years, or could move, ownership is a constraint. If the location is part of the brand and you'll stay ten years or more, ownership is worth modeling.
A worked 10-year comparison
The table compares cash outlays over ten years on one illustrative property. It isn't a forecast; change every input to your own.
| Lease | Buy | |
|---|---|---|
| Upfront cash | Deposit ≈ $10,000 | Down payment and costs ≈ $220,000 |
| Year-1 occupancy cost | Rent ≈ $120,000 (NNN) | Debt service + taxes + insurance ≈ $150,000 |
| Annual increase | 3% rent bumps | Taxes ≤ 2%/yr (Prop 13); debt service fixed or reset |
| 10-year cash out | ≈ $1.38M | ≈ $1.6M |
| Equity after 10 years | $0 | Loan principal paid down + any appreciation, minus capital costs |
Illustrative only; not a quote, forecast or tax advice. Change every input.
What the table leaves out
Tax treatment (depreciation, interest deduction) differs and needs a CPA. Ownership brings capital costs such as roofs, parking and HVAC. A lease may include tenant improvements a landlord pays for. The cash tied up in a down payment has its own cost to the business.
Questions to answer first
How long will you stay? Can you spare the down payment without starving working capital? Will you occupy enough of the building for SBA rules? Would you rent out the rest?
Next step
See SBA 504 vs. conventional, then look at WCA listings.
Frequently asked questions
Is it cheaper to own or lease a commercial building?
It depends on the hold period, cash available and the market. Owning often costs more early and builds equity over time.
Can I lease out part of a building I buy?
Yes, within lender and SBA occupancy rules.
What's the biggest hidden cost of owning?
Capital repairs such as roofs, HVAC and parking lots.
Sources
Next step
See current WCA listings →Buying a building for your business: SBA 504 vs. conventional financing
How owner-users compare SBA 504 and conventional commercial loans, and the owner-occupancy rules that decide eligibility.
Reading a cap rate on a small commercial listing: adjust the NOI first
What a capitalization rate measures, how listing cap rates are built, and three questions to ask before trusting one.