Is leasing preferably to owning a building we already own and how do we decide?
I work for a non-profit and we own a building that we build in 1957. (I was 3 years old). The board is entertaining selling the building and leasing for financial reasons, which include eliminating administrative costs. We have the need for 6 spaces for employees. (Our building is larger than we need), however, I would like to have a conference room to avoid constantly looking for meeting places for several groups that meet here.
We know that the cost of running the building between 30K to 40K (the high end is only if something untoward happens like a mold remediation or a new AC unit. I do know that the next major “thing” is probably a new roof because it is 20 years old. That will cost about $25,000.
Rents in the outskirts for the building I would want range about $2000-$2500 a month (Modified Gross). There are others that are not desirable ( triple net)
What should I be looking at to make the determination? Realtors just want to sell property and builder and architects want to do that work. No solid answers. The other driving force is investing the money in the bank for the future.
Thank you for your question. Leasing as opposed to owning a building depends on a variety of factors. It sounds like in your case the $30k to $40k to operate the building is already more costly than renting at $2000-$2500 per month. You also have the cost of the roof replacement, and any other future maintenance.
The benefits of owning the building are the non-profit owning the asset and the value of any equity in the property.
Here are some options to consider:
1. You could sell it and reinvest the money into something else.
2. You could rent it and lease elsewhere, using the rental income to pay for any expenses on the building and to earn a little income. You would have to make sure it generates positive cash flow for this to work.
3. You could sell it and buy a different building that is more suitable to your office space and size needs.
To answer, “What should I be looking at to make my determination?” You’d want to make sure whichever option you decide on, that it is financially feasible.
You also would want to discuss this with your accountant. They may be aware of additional benefits to renting v. owning for a non-profit.
I hope this is helpful!
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