When Does It Makes Sense to Purchase Your NNN Building?
- Oct 17, 2012
The decision to buy your own building is a question that plagues business owners and investors on a consistent basis. Is there ever a correct answer to this question? I believe there is. If a business is going to be occupying its own building, purchasing versus renting often makes sense if the business is fairly stable with its growth projections. If a business has been the same size headcount and occupancy space-wise for some time, looking at purchasing your own property could warrant some investigation. I recently represented a buyer in the purchase of their facility. They had been at a fairly stable head count for some time and buying the property was less expensive than renting.
When the monthly purchase costs are similar to monthly rental expenses, and the buyer has the down payment, clearly this could make sense. Currently, there are many tax advantages to owning your own real estate. The owner is able to deduct the interest expense along with all of the other costs of ownership. In leasing, all of the expenses are deductible, yet no equity is realized. It always makes sense to discuss this opportunity with your accountant prior to finalizing any transaction. When clients have monthly or quarterly meetings with their accountant, projections can be analyzed, cash on hand can be assessed and discussions determining a long-term investment should take place.
The security one receives by owning their property should not be overlooked. Landlords can increase lease rates, sell their investment, not renew tenants, as well as a myriad of other scenarios. Running your business is challenging enough; why add another level of uncertainty to the mix if it’s not necessary?
If a company is on a dramatic growth spurt, is a new business or simply needs the affability of a lease, I generally do not recommend purchasing. Having relative flexibility in turbulent times is an important feature of a lease. It always makes sense to look at your long term vision when considering these alternative decisions.