To Buy or Lease? That is the question....

"There's not any one magic formula. In recent years, a majority of clients conducting lease-buy analyses have discovered that leasing won out. The long-term appreciation of a real estate asset is unknown.
Risk-averse businesses opt to put dollars directly back into the company rather than real estate speculation.


For smaller companies, the initial outlay to purchase real estate may be prohibitive, particularly in comparing those costs against opportunities lost by not investing in the growth or expansion of the business. Owning real estate is another wealth creation vehicle. A company with multiple locations can sell the business, but retain the properties that it then leases to the new owner. In many cases, the long-term value of the properties exceeds that of the business itself.


One challenge to purchasing an existing building is to determine the actual cost of owning and maintaining it. A leaky roof, an undisclosed oil spill, plumbing problems -- all are potential liabilities that the seller may not represent in the sale. The cost for a significant remodel, particularly notable in Portland's active market for adaptive re-use of old properties, may lead to a minefield of ADA compliance issues, seismic upgrades and environmental cleanups.


Owners purchasing a building too large for current needs with the intent to lease excess space should consider carefully the cost and headache of moonlighting as a landlord, responsible for every flickering light bulb and backed-up toilet, while factoring in the hiring a property management firm for larger facilities. But through due diligence of inspections (and by using a good broker), an astute buyer can discover potential issues in advance while absolving him or herself from future liability. Would-be buyers should drill down in a building's operating costs, working from a baseline expectation of perhaps $1.50 per square foot for utilities. A facility in which utilities are running $2.50?
Tune up the HVAC system and save some money.


There is an emergence of office condos, a viable route for smaller businesses to purchase property (a portion of a building) in the city.
Investment in such limited space (at the expense of other business
needs) may backfire for companies such as high-tech startups, which may begin with 1,000 to 2,000 square feet and quickly evolve to greater space needs. The result would be a forced sale of the property regardless of whether its value has appreciated or not. Office condos have become more attractive as business owners look for ways to stabilize costs through a fixed-rate mortgage. Would-be buyers face additional expenditures up front, such as the price of building out unfinished condo space.


With many such purchases made through Small Business Administration
(SBA) loans (covering 90% of the purchase price), tenant improvements come out of the same pocket as the down payment -- a pocket buyers often find not deep enough, particularly when compared with lease agreements that can require little more than first and last month's rent."
for more information see ; www.houstonrealtyadvisors.net
or www.houstonrealtyadvisr.com