Should You Lease or Buy a Facility?

Assuming that you have determined your facility needs and have chosen the right facility, you're now ready to make the decision about whether to buy or rent the property. In saying this, we assume that the owner of the target property would consider either a sale or a rental of the property. This may or may not be so. The rent-or-buy decision can also arise if you are selecting from a group of competing sites, some of which are for sale and others which are for lease.

Factors to Consider

To help you make this decision, you need to consider:

• when leasing makes sense
• when buying makes sense
• common lease terms
• comparing the economics

Long-Range Effect of the Decision

If you are a new business owner considering whether to acquire a facility by purchase or by lease, you may have a tendency to concentrate on the short-term, such as the first year cash flow projections that would result for each of the alternatives. This is natural, and probably altogether necessary: If things don't go well enough in the first couple of years of the business's operation, it may not be around to see how a particular decision would have benefited it 10 years down the road. But having said this, it's still worthwhile to consider how a lease or rental could affect your business in the future. Will it be important for your business to be able to stay at the location for as long as you want? Do you foresee the need to modify the facility in a way that a landlord may not agree to?

Let's say you look at the short-term and long-term implications of the rent-or-buy decision, and conclude that it's in the long-term best interests of your business to buy the property. If your rent-or-buy question is otherwise a close call, this long-term consideration may lead you in one direction. If, however, buying the facility is out of the question, at least you'll know that you should be thinking about how you can accomplish these long-term goals by other means.