Lease vs Own

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To Lease or To Own – That is the question

 

With so many opportunities in the market it can seem confusing – Leasing vs. owning.  Many business owners are faced with the decision to continue leasing space or purchasing a property suitable for their needs.  Lease rates are low, but properties in some cases are also selling for fifty cents on the dollar.  There are several factors that should be considered when making this decision.

 

  1.  Available Cash – Depending on the type of loan selected, an individual looking to purchase Commercial Real Estate can expect a down payment of 10% to 25% of the purchase price.  It is very typical to see individuals select an SBA loan if their business plans on occupying 51% of the property.  An SBA loan can, in most cases, get an owner in with a minimal down payment and a very favorable interest rate.
  2. Future Business Growth – Certain business models might call for multiple locations and the risk of owning and allocating a great deal of cash towards down payments might be outweighed by the flexibility and mobility a lease provides.  In addition to multiple locations, business owners might run into a situation where they outgrow their current location.  If an owner owns a building that becomes obsolete for their needs and they need to lease additional space or purchase an additional building, the costs could be higher in the long run.
  3. Costs – The stability that owning provides can help one predict future costs.  Leasing provides for an unstable cost structure.  Lease rates will change with the market and can be impacted by a variety of factors out of the control of the lessee.
  4. Tax Benefits – One should really talk to their accountant regarding the tax benefits of leasing vs. owning, but it is known that there can be benefits seen with both scenarios.  It is best to weigh the benefits of both scenarios while taking in consideration your business model.  For example a property owner can take advantage of depreciation on improvements completed over time and one can also write off any interest payments. This write off could exceed the costs of leasing.

 

In the South Metro Denver market we have seen many individuals exercising leasing options as well as purchases.  Many small business owners currently working from their home feel that it is a good time to expand to a commercial property through a lease.  While others in existing leases are now looking to lock in payments by taking advance of low interest rates and secure financing to purchase a property.  Depending on the business and the factors discussed above each business can find the best option for their future.

 

Evaluating the two options can be overwhelming; therefore, we encourage business owners to seek advice from a knowledgeable real estate broker, a commercial lender and their CPA, to review the options together.   The real estate broker will compare purchase prices vs. lease rates.  With the right information, this decision can have a positive impact on the future of the business.    Below is a very basic lease vs. own analysis for a 2,000SF building:

Lease Rate =                      $15/SF/YR NNN                                Or           $2500/mo

Purchase Price =              $175/SF                                Or           $2055.31/mo with an SBA 504 loan

 

SBA 504 Loan Proposal
Purchase Price

$350,000

Equity Injection

$35,000

Loan Amount

$315,000

1st Mortgage  (50%)

$175,000

Amortization

25 years

Interest Rate  Fixed for 3 years

6.25%

Loan Payment

$1,154.42

SBA 2nd Mortgage (40%)

$140,000

Amortization

20 years

Interest Rate  Fixed for 20 years

4.70%

Loan Payment

$900.89

Total Loan Payments

$2,055.31

Based on current market rates

 

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Navpoint Real Estate Group

Confidentiality Agreement

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Agreement

 

NAVPOINT REAL ESTATE

CONFIDENTIALITY / NON-CIRCUMVENTION

NON-DISCLOSURE AGREEMENT

NavPoint Real Estate Group (“Broker“) has been retained as the exclusive Broker regarding the sale of the property located at the address noted below.

To receive an Offering Memorandum (“Offering Memorandum“) please read this Confidentiality Agreement and agree to the terms. The details and information contained within the Offering Memorandum were obtained from sources deemed to be reliable. Verification of the information contained within the Offering Memorandum are the sole responsibility of the Potential Purchaser. No representation is made to the accuracy of the information by Seller or Broker. THIS AGREEMENT is made and entered into by and between NavPoint Real Estate Group and “Potential Purchaser” and shall become effective when executed by Potential Purchaser or Potential Purchasers Broker.

A. Commencing with discussions held between their respective representatives the parties have pursued and expect to continue to pursue discussions (the Discussions) relating to the potential sale of:

In the course of these discussions, Seller has disclosed to Potential Purchaser and may continue to disclose to Potential Purchaser certain information of proprietary and confidential nature (“Confidential Information”).

B. Seller will provide to Potential Purchaser certain printed, typed and handwritten materials and other tangible materials containing or relating to Confidential Information (“Documentation”).

In order to protect the Confidential Information, both during the term of the Discussions and after their expiration or termination, Potential Purchaser agrees as follows:

  1. Potential Purchaser shall maintain the Confidential Information in strictest confidence and shall not disclose to any third party any Confidential Information received from the other party. In addition, Potential Purchaser shall ensure that its officers, employees and agents likewise maintain the Seller’s Confidential Information in strictest confidence and that such persons do not disclose such Confidential Information to any other party. Potential Purchaser shall not have the right to use, duplicate, reproduce, copy, distribute or disseminate Confidential Information except for purpose of the discussions and negotiations as needed.
  2. Potential Purchaser agrees to limit access to Confidential Information received from the Seller to its own officers and employees on the absolute need-to-know basis solely for the purpose of the Discussions, and to use the same degree of care in reserving the secrecy of the Confidential Information furnished by the Seller and/or Broker as it uses in preserving the secrecy of its own Confidential Information.
  3. Notwithstanding the conclusion or termination of the Discussions, Potential Purchaser shall continue to fulfill its obligations hereunder for a period of one (1) year from the date of disclosure. Upon termination of the Discussions, all Confidential Information, including all forms of Documentation shall be returned to the Broker, including any copies or adaptations made by the receiving party.
  4. The obligation of Potential Purchaser under Paragraphs 1 and 2 above shall not apply or shall cease to apply to any information which Potential Purchaser can demonstrate by reasonable documentary proof- (a) to have been in the possession of Potential Purchaser at the time it was first disclosed by the Seller and/or Broker; (b) was in the public domain at the time it was disclosed to Potential Purchaser; (c) entered the public domain through sources independent of Potential Purchaser and through no fault of Potential Purchaser; (d) was lawfully obtained by Potential Purchaser from a third party who is free to disclose such information to Potential Purchaser; (e) to have been at any time developed by Potential Purchaser independently of any disclosure from the Seller; or (f) has been in the possession of Potential Purchaser for more than five (5) years.
  5. Potential Purchaser shall not have any right to register any copyright, trademark, service mark or corporate name based upon Confidential Information or otherwise register or claim any right to use any Confidential Information disclosed to it by the Seller without the express written consent of Seller and Broker. Nothing herein, and no disclosure of Confidential Information or Documentation pursuant hereto, shall be deemed a grant to Potential Purchaser, whether by implication, estoppels or otherwise, of any right or license under any industrial property right of the Seller.
  6. The Discussions shall continue until the date on which an Agreement shall have been concluded or the date on which either party shall have given written notice to the other of termination of the Discussions. All obligations of the parties hereunder shall survive any termination of the Discussions.
  7. Each party acknowledges and agrees that the unauthorized disclosure or use of Confidential Information disclosed to it by the other party or any other breach of its obligations will result in irreparable injury to the party, which furnished the Confidential Information. Therefore, each party agrees that the injured party shall be entitled to receive injunctive relief in any legal proceeding instituted by such injured party.
  8. This Agreement shall be governed by, and interpreted and construed in accordance with, the laws of the State of Colorado, USA.

For purposes of creating a binding contract in determining the rights and obligations under such contract in any court of law, the parties acknowledge that a signature reproduced by either digital signature, electronic signature, facsimile or photocopy shall have the same force and effect as an original signature and that the original and any such copies shall be deemed one and the same document. In the event this Non-Disclosure Agreement is submitted electronically, this agreement is provided under the Uniform Electronic Transactions Act – Col. Rev. Stat. §§ 24-71.3-101 et seq. By submitting this agreement, you are confirming your agreement to submit this Non-Disclosure Agreement electronically, and your indication of agreement, along with information provided, will have the same force and affect as if this agreement was submitted manually and your manual signature was provided. You should retain a copy of this agreement for your records.

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