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Owner-User vs. Leasing: How to Decide

By Javier Brown, Commercial Real Estate Agent, MGR Real Estate · DRE #01755491

If your business runs out of a warehouse, shop or yard in the Inland Empire, you'll eventually face the question: keep leasing, or buy a building of your own? Owning can build wealth and give you control. Leasing keeps cash free and lets you move. Neither is always right. It depends on your business, your cash, and your plans.

This guide is general information. Talk to your CPA and lender about your own numbers.

The case for buying (becoming an "owner-user")

1. Your rent pays you instead of a landlord. As you pay down a loan, you build equity in a real asset.

2. Control. You decide on improvements, signage, power upgrades, racking and how the building is used, within zoning. No landlord approvals, and no renewal negotiations.

3. Stable housing costs. With fixed-rate financing, your loan payment doesn't go up like rent increases do. You'll still have taxes, insurance and maintenance.

4. Long-term upside. If the property gains value over time, that gain is yours. Some owners later lease the building to another business and keep it as an investment, or sell it.

5. Possible financing options for owner-users. Some loan programs designed for businesses that occupy their own building may allow a lower down payment than a typical investor loan. Ask a lender which programs you qualify for.

The case for leasing

1. Cash stays in the business. Buying requires a down payment and closing costs. That cash could go into equipment, inventory, hiring or marketing instead.

2. Flexibility. If you grow fast, shrink, or need a different location, a lease ending gives you a clean exit. Selling a building takes time.

3. Fewer surprises. Depending on the lease, the landlord may handle major repairs such as roof or structure. As an owner, every repair is yours.

4. Access to buildings that aren't for sale. Many of the buildings that fit your needs are only available for lease.

5. Focus. Some owners simply prefer to spend their time running their business, not managing real estate.

Questions to ask yourself

How long will I stay?

The longer you plan to stay in one place, the more buying tends to make sense, because the costs of buying and selling are spread over more years. If you might move or grow out of the space in a few years, leasing usually fits better.

Do I have the cash, and should I use it here?

Look at what else that cash could earn inside your business. Some companies get more return from new equipment or hiring than from a building.

How stable is my business?

Lenders look at your business's financial history. A steady, profitable business is better positioned to buy.

Do I need something special?

Heavy power, cranes, extra yard, high clear height, or special permits can be hard to find for lease. If you'll be spending heavily on improvements, owning means you keep the benefit.

What about taxes?

Owning and leasing are treated differently for taxes (rent deductions vs. depreciation and interest). Your CPA should run both scenarios for you.

A simple side-by-side

Why the Inland Empire is different

Industrial space here is in demand from logistics, manufacturing, contractors and trucking companies, so good small and mid-size buildings don't always stay available long. Zoning for uses like truck parking, outdoor storage, and certain manufacturing varies by city, from Ontario and Fontana to Colton and Bloomington. Before buying or leasing, confirm your use is allowed at the exact address.

A middle path: lease now, plan to buy

Many business owners lease while they save and build financial history, then buy when the right building comes up. If you're in that position, tell me what you'd want to own. I can watch for owner-user buildings, including ones that aren't publicly listed, and let you know. Join my off-market property list.

Already own your building?

If you're an owner-user thinking about moving, selling, or leasing out your current building, start with a free valuation. Some owners sell and lease back (a sale-leaseback) to free up cash while staying in place.

Frequently Asked Questions

How much down payment do I need to buy an industrial building?

It depends on the lender, the loan program, the property and your business's finances. Talk to a commercial lender early so you know your buying range.

Is it cheaper to buy than lease?

Sometimes, over a long period. In the short term, buying usually costs more upfront. Compare the total cost over the years you plan to stay.

Can I buy a building bigger than I need and lease the rest?

Yes. Some owner-users buy a multi-tenant building, occupy part, and lease the rest. Lenders have specific rules about how much you must occupy for certain owner-user loans.

Can I buy the building I'm leasing now?

Possibly. Some leases include a purchase option or right of first refusal. Even if yours doesn't, the owner may be open to an offer.