I am contemplating either buying or leasing a building and I would
like to do a buy versus lease analysis. Can you get someone to do this
analysis and to give me a list of key questions I should ask before I
make my decision?
Size of warehouse rentable 91,800 sq. ft.
Useable  area     82,850 sq. ft.
Price to purchase $ $ 2,300,000.
Rental price      $ $ 3.12 per sq. ft. per year esculates 3% every
five years
rental is triple net, so that I have to pay for everything as if I
owned it.
The add on costs, common area costs, taxes, insurance etc. is
0.75cents per square foot a year, 91,800 sq. ft X 0.75 cents $ 68,850.
per year.

Hi there,

Below is the summary of your buy vs. lease analysis:

Questions to ask before committing:
1. Is it possible to sublet any area of the warehouse? This would
especially refer to the unusable area (8950 sq ft).

2. Would you be able to purchase this building outright or would you
be entering into a mortgage? If a mortgage is required, what are the
terms of the mortgage?

3. Is it possible to rent only the usable area of the warehouse? (This
wasn't clear from your question)

4. Consider long-term projected revenue from this warehouse; does it
merit entering a rental agreement where costs increase 3% every 5
years? In other words, is revenue increasing at a greater rate?

5. Consider the terms of the lease; what are the possible time periods
of the lease and what are the associated penalties associated with an
early exit.

6. Look into the common costs associated with renting and compare them
directly with ownership - are there any potential situations in the
future where they would not move in perfect unison with one another?
By this I mean are there any potential breaks you could receive by
either owning or renting this property? Though I understand the rental
is triple net, you are still technically a "renter".


Figures to consider:

Cost for renting (yearly - first five years): $286 416 (total: $1 432
080)
Cost for renting (yearly - second five years): $295 008 (total: $1 475
040)
Cost for renting (yearly - third five years): $303 858 (total: $1 519
294)
These values omit add-on costs and assume that these costs would be
the same regardless of whether you rent or own the property.

In essence, what you will be attempting to do taking the estimated
time that you intend to use this property and multiply that by the
difference between your annual mortgage payments and annual rent
(assuming the mortgage will be paid in exactly the same amount of time
as you plan to use the property). Remember also that if you purchase
the property you will get back approximately:

((Total mortgage payments) - (Total mortgage payments*interest
rate))*(1 + (% change in value of property))

Leasing will return nothing upon leaving the property :)

The MOST important thing is probably not whether or not to buy the
property, but more HOW you plan to purchase the property. Unless there
is a significant marginal difference in the add-on costs between the
two options, just ignore them (you'll be paying those anyways).

If you are unsure of any of the information here please feel free to
post a clarification.

Hope this helps!

answerguru-ga