Own versus lease
Owning builds equity and stabilizes costs, while leasing keeps cash free for operations and gives flexibility. Neither is always better.
| Factor | Own | Lease |
|---|---|---|
| Upfront cash | Large down payment and closing costs | Deposit and first month |
| Monthly cost | Mortgage, taxes, insurance, repairs | Rent, often plus shared costs |
| Flexibility | Low | Higher |
| Equity | Yes | No |
Costs beyond the purchase price
Closing costs, inspections, insurance, property taxes, maintenance and renovation can add substantially to the price.
Budget for an appraisal, environmental review where needed, legal fees, title insurance and repairs. Ongoing costs include property tax, insurance, utilities and a reserve for roof, HVAC and parking lot work. A building that looks cheap can cost more than a lease once those are included. Ask your accountant and attorney about tax treatment and structure.
How commercial real estate is financed
Options include bank mortgages, SBA 504 and 7(a) loans, and seller financing. These usually need a down payment and several weeks to close.
Lenders review your business and personal finances, the property's value and often require a meaningful down payment. SBA programs can offer lower down payments for owner-occupied property; read SBA 504 loans and SBA real estate loans, and confirm current terms with the SBA. See also getting a commercial real estate loan.
Test the cash flow before you commit
Compare total monthly ownership cost with your current rent, then stress-test it against a drop in revenue.
In an illustrative example, rent is $6,000 per month. Owning would cost $7,500 in mortgage, tax, insurance and upkeep. The extra $1,500 per month buys equity but reduces cash. If a slow season drops revenue by 20 percent, can you still pay it? Use the stress test guide.
What ROI Funder does and does not place
ROI Funder does not place commercial real estate mortgages. It can help with the operating cash needs around a move, such as buildout, equipment and inventory.
For the building itself, speak with a commercial bank, an SBA lender or a mortgage specialist. For buildout, fixtures and equipment, consider equipment financing. For moving costs and working capital, see working capital. Our commercial real estate loans page explains the product and when it is not the right fit.
Common mistakes owner-occupiers make
The biggest mistakes are buying too much space, underestimating repairs and draining cash to make the down payment.
Buy for the next three to five years, not an imagined future. Order a thorough inspection and price the repairs into your offer. Keep at least several months of operating expenses in reserve after closing. Many owners also forget that a vacant portion of the building earns nothing unless it can be leased. Run the numbers with a conservative rent estimate, and consider consulting an advisor who knows your local market.
Get advisors on your side early
A good team prevents expensive mistakes. Bring in help before you sign anything.
You will want a commercial real estate attorney, an accountant who understands depreciation and property tax, a lender who handles owner-occupied property, and an inspector. Interview two of each if you can. Their fees are small next to the price of the building, and they often spot issues that change the deal or the price.
A short buying checklist
Define space needs, run both cost scenarios, line up financing, inspect carefully and involve a real estate attorney.
- Define square footage, location and growth needs.
- Compare owning and leasing over 5 to 10 years.
- Talk to lenders before you make an offer.
- Order inspections, an appraisal and a title search.
- Check zoning for your use; see small business zoning laws.
- Keep enough cash after closing to operate.
Frequently asked questions
Does ROI Funder finance commercial real estate?
No. ROI Funder places working capital, term loans, lines of credit, equipment financing and similar products, not commercial mortgages.
How much down payment is needed?
It varies by lender and program. SBA programs may allow lower down payments, so confirm current terms with a lender.
Is it better to buy or lease?
It depends on cash, stability of your business and how long you will stay. Run both scenarios with real numbers.
What cash do I need after buying?
Enough to operate through a slow stretch and handle repairs, not just the closing costs.