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What's right for your business?
Owning rather than leasing your commercial
property can really pay off. For many small
businesses, a monthly mortgage payment can
be the same or less than a lease payment.
And your SBA 504 fixed rate loan payment
won't increase annually - like your lease rate
will. Owning, of course, also helps boost your
equity, and the SBA 504 needs just a minimal
down payment. By analysing your needs, an
SBA 504 loan for 90% of your building
purchase can be advantageous for your
business.

Is it better to own or lease business real
estate?
Often the choice to buy or lease space is ego
driven rather than making the best business
decision. In my opinion, leasing is usually the
better option. We've all heard stories about
fortunes made in real estate. But real estate
can also be burdensome and may distract you
from their primary mission -- to make your
business successful. A lesson can be learned
from major corporations who choose not to
own their buildings. Here are some of the
reasons.

Flexibility. Leasing affords more flexibility to
increase or reduce space as needed. It's a lot
easier to renegotiate your lease than dispose
of a building in a soft market.

Market fluctuation
Timing the market is essential when buying
and selling real estate. Professionals are
better at it than novices. Too often novices
buy at the top of the market and sell at the
bottom.

Business owners often make real estate
buying decisions based upon the needs of
their business rather than the real estate
market. The best time to liquidate real estate
may not coincide with the time to sell the
business.

Managing real estate
Your business may be neglected because of
real estate management distractions. Real
estate management is a skill best left to
professionals.
Your exit plan
Selling a business and real estate together
may be more difficult. One will have a
diminished outcome.
Working capital is compromised
Precious working capital will be tied up in the
real estate. Lenders require a substantial
down payment that could otherwise be used in
your business.
Better tax break leasing
You can only write off interest expense (not
amortization) on the mortgage while lease
payments are 100% tax deductible.
Cash crunch
You may incur phantom income when selling
your depreciated building. Phantom income is
taxable profit without corresponding cash flow.
Financial ratios
Income to asset ratios are better when leasing
than owning real estate. Some lenders
consider that important. The romance of
owning real estate can be compelling but
leasing may be best for you.

Santos Associates, FEDERALLY
AUTHORIZED TAX PRACTITIONERS,
can help you with your accounting, tax
and financial planning needs. Call today for
an appointment & consultation. We are not
attorneys, we can refer competent council
upon request.