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Commercial Real Estate - Should You Continue to Lease or Buy?

Running your business in commercial retail, office or warehouse space costs you hard earned money whether you own or lease.

Pradia Real Estate Advisors work with businesses in lease renewal situations and the question comes up of whether they should buy or continue to lease. There are many factors that

will influence your decision such as lease hold improvements already in place, location, market availability and down payment required for a purchase.

These factors are different for each business' unique operating situation. As a baseline for a decision we work with the investment income approach of capitalization rate, here is a scenario for a 2500 sq ft warehouse:

Base Lease Rate - $16 / sq ft per annum = $3333.33 / month

Purchase Price at $400 / sq ft = $1,000,000; with the same base rate your business pays yourself, this would be a 4% capitalization rate i.e. you are making 4% on leasing your business property to yourself.

This same capitalization rate works if you are an investor looking to purchase and lease to a business at market rate. Internal Rate of Return (IRR) is also a good calculation for performance measurements for investments

If you're interested in turning your lease into owning and paying yourself or a real estate investor looking for a Commercial Real Estate Investment let's talk about your objectives and how we may build a profile to work towards hitting your goals!

Contact Us Now to discuss further and put money in your pocket!


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