Determining Whether to Lease or Buy Industrial Real Estate

It can be the million-dollar question: do I buy industrial real estate or just lease it? The answer is usually quite apparent after some examination, so the challenge becomes figuring out which questions to ask.

Owners or lessees of industrial real estate are no strangers to questions, and there are plenty when it comes to the decision to lease or buy. Do you prefer to conserve cash with a flexible position in the market, or are you looking to benefit from tax benefits and hope for appreciation? But these general queries are just that – general. And too often, major leasing or purchasing decisions can be based on these generalized questions rather than specific needs. And that’s a problem.

The most effective way to quickly determine whether a lease or a purchase is the most appropriate solution to your industrial real estate needs is to begin with concrete, factual data. Consider the following:

1. What size building do I need today? What about in three, five, ten years?

2. Where do I need this building to be located? What will this location offer me in 15 years?

3. What specific amenities do I need today? Will that change in the future? Can this building accommodate those potential changes?

4. What’s my available cash? My available debt?

5. What are the opportunity costs of my down payment compared to other uses for that money?

6. What about appreciation, depreciation and maintenance costs?

7. What about leverage, or financing costs?

8. What kind of return on investment can I expect?

These questions can go on depending on specific resources, needs and desires. But even a partial list quickly makes it clear – an experienced, knowledgeable and trained real estate professional is an asset in a decision like this. In addition to questions like these, he’ll ask you many, many more. He’ll assess your need today and anticipate how it might change tomorrow. He’ll provide a detailed, useful and thorough analysis designed to outline your cash flow, before and after tax costs, a realistic return on your investment and wealth accumulation estimates for any property you’re considering. It’s critical information – it’s what gives you the ability to thoughtfully assess your options and pinpoint which is the best choice for you.

Winging it – which is what you’re doing if you go at it alone – means you’ll be making a decision without knowing all the facts. And when it comes to a lease or a purchase of industrial real estate, the wrong choice can be costly.