Ownership Versus Leasing

The question of whether to own or lease is one that crops up when the outlook of a business is more stable. While this is written to help property owners showcase the benefits of leasing to clients, leasing really is a smarter way to go for most businesses for a variety of reasons.

Active Equity

Capital used to purchase property now may have shown a much more exponential return if it had been invested in the business. Purchase of a new machine may mean higher production rates, for example. Unless your business is real estate, this money may be better spent elsewhere.

Do What the Big Boys Do

Almost 90% of large corporations lease their space, even though they can easily afford to purchase property.

Consider Growth

The main goal of a business is growth. With the growth of a business comes the outgrowing of a space. Take, for example, the former Zenon, now a division of GE. It started out of a modestly sized house in downtown Hamilton, Ontario. It ended up in a huge 175,000 square foot facility on 150 acres of land in Oakville, and is continuously adding new facilities all over the world. If Zenon had only taken enough orders to sustain their small business during their initial growth period, they would have never grown to the size that they did before they were purchased by GE. Purchase of a property limits growth, both psychologically and financially.

When it Makes Sense

In a case where a company plans to spend more than ten years in a particular property, or if it has an unconventional (special purpose) use for the space that may make it difficult to move operations, such as a plate glass manufacturer, it makes sense to buy the property.

Put it To an Accountant

Since the argument for leasing is coming from such an obviously biased source, tell your clients to go to an accounting firm and solicit their advice on the matter. For tax reasons alone, they will very likely back up our points.

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See Page 451 in Commercial Real Estate Investing in Canada (realestatementor.ca) for figures that show a huge increase in cash flow when leasing versus owning.