Imagine a business owner who has been in the same Richmond space for six years. It’s a great location with steady customers, and they just renew their lease every three years without giving it a second thought. But last month, as they wrote their usual rent check, they finally did the math on what they’ve paid out over the last six years.
The final number stopped them cold. It wasn’t necessarily a bad move. In fact, it might have been the perfect call. The problem was that they never actually made a deliberate choice. They just kept signing the paperwork.
When you keep leasing but really should be buying, you spend years building up equity for someone else. On the flip side, if you buy when you really should lease, you tie up valuable capital, take on heavy debt, and get stuck with a building you might outgrow. Both are very expensive mistakes. The trick is figuring out which situation applies to you, and the only way to know for sure is to actually run the numbers.
The “should I buy or lease” debate sounds like a real estate question, but it’s really a business question. Most people just answer it based on gut feeling, habit, or casual advice from someone who doesn’t even know their financials. While there is no single right answer for everyone, there is absolutely a right way to figure out your answer.
Why “Throwing Money Away” Is the Wrong Frame
Let’s clear something up right away. Rent isn’t inherently wasteful, and ownership isn’t inherently smart. The real question is what that money is actually buying you.
When you lease, you’re buying flexibility, predictability, and the ability to keep your cash flowing into your actual business. When you buy, you’re building equity, but you’re also taking on debt service, maintenance headaches, and tying up your liquidity.
The whole “throwing money away” mindset assumes that buying is always the right call. It just isn’t. Just ask the business owner who bought a building in the wrong location, or the one whose property suddenly needs a $200,000 roof replacement right when they are trying to scale their company.
Here is a better way to look at it: What does the money you spend on your space actually buy you, and is that the best use of your capital right now?
When Buying Commercial Real Estate Actually Makes Sense
There are definitely times when buying commercial space is the smartest move a small business can make. Buying usually makes sense when:
- You’ve been in the same space for three or more years and don’t plan to significantly change your footprint.
- Your monthly rent is already close to, or even exceeds, what a mortgage payment would cost.
- You have the down payment ready (typically 10% to 15% for SBA 504 loans) without draining your operating reserves.
- Your business brings in stable, predictable cash flow rather than feast-or-famine revenue.
- You genuinely want to build a real estate asset alongside your business.
If we look at Richmond right now, Scott’s Addition is a great example of an area where ownership has become increasingly out of reach for small operators because of how much prices have moved. Buying there today is a very different conversation from what it was three years ago, and that pattern tends to spread to other neighborhoods.
If you do decide to explore buying, you need to know about the SBA 504 loan. It’s a government-backed financing program that lets qualifying small businesses buy commercial real estate with as little as 10% down and competitive long-term fixed rates. It’s the single most important financing tool that most business owners don’t even know exists. You will also want to work with an SBA Preferred Lender (PLP). These lenders can underwrite and approve SBA loans internally without waiting for the SBA to review them. That means you get to the closing table faster, which matters when you are competing for a property.
“Often, I see borrowers engage with lenders after an LOI or even a purchase contract has been signed. This can lead to timing pressures or potential pricing issues if the borrower cannot obtain a large enough loan to make all necessary improvements. An easy solution is to engage your lender well ahead of signing that LOI so you can get qualified, and come prepared with a very good idea of your loan budget and your business and personal financials.”
– Dennis Wagner, SBA Business Lending Specialist at Dogwood State Bank ($175MM+ in closed SBA loan volume since 2020, Coleman Emerging SBA Lender of the Year)
When Leasing Is the Smarter Play
There are equally specific times when buying is simply the wrong move and a well-negotiated lease is the much better financial decision. Leasing usually makes sense when:
- You’re growing fast and might need more space in a few years. Owning a building you’ll quickly outgrow is expensive and hard to unload.
- You’re in a growth phase where having flexible capital matters more than building equity.
- You can’t find the right property at the right price. Buying the wrong building just to stop “throwing money away” is much worse than leasing.
- Your industry requires a highly specialized buildout that future buyers won’t value. You don’t want to pour equity into a space you can’t easily sell later.
- Remember, leasing in the perfect location always beats owning in the wrong one.
A strong tenant representative (a broker working exclusively on your behalf) can also negotiate perks like free rent periods, exit options, and a TI allowance (Tenant Improvement allowance) to make a lease really work for you financially. TI is money the landlord contributes toward building out your space. On a great lease, this can be anywhere from $20 to $60 per square foot, meaning the landlord is covering a significant portion of your setup costs. That’s real money you simply don’t get when you purchase a building.
The Numbers You Actually Need to Run
Most business owners just compare their monthly rent to an estimated mortgage payment and call it a day. That’s not real analysis. The real comparison is your all-in occupancy cost for a lease versus your all-in ownership cost for a purchase, factoring in the equity you build when you buy. (Note: If you haven’t yet, read our guide on Before You Start Looking for Space to understand these terms.)
Monthly Lease Costs (All-In) Include:
- Base rent
- NNN charges, or triple net, means the tenant pays three costs directly: property taxes, insurance, and maintenance. This is typically $4 to $10 per square foot annually, billed monthly in addition to your base rent.
- Utilities. Sometimes these are included in a modified gross lease, but under an NNN lease, the tenant pays them separately.
- Tenant repairs. Your lease terms dictate this, but interior and systems maintenance usually falls to the tenant.
- Opportunity cost of your security deposit. This is typically one month’s rent just sitting idle for the duration of the lease.
Monthly Ownership Costs (All-In) Include:
- Debt service (your principal and interest payments).
- Property taxes, insurance, and maintenance (which you now pay directly rather than pooling through NNN charges).
- Utilities.
- Capital reserves for all repairs. You should budget 1% to 2% of the building’s value annually. As the owner, you are entirely responsible for the roof, structural issues, and major systems.
- Opportunity cost of your down payment. This is typically 10% to 15% of the purchase price, meaning significantly more capital is tied up compared to a lease deposit.
Let’s look at an example: If you’re paying $3,500 a month in base rent on a NNN lease, your true monthly number is probably closer to $4,200 or $4,500 once you add NNN charges and utilities. If you could buy a comparable building with an all-in ownership cost of $4,800 a month, but $1,200 of that goes toward paying down your principal and building equity, the two options are actually much closer than the surface numbers suggest.
Six Questions to Answer Before You Decide
Before you run any complicated math, sit down and answer these questions. Your honest answers will naturally point you toward the right path:
- How stable is your location requirement? Could your ideal space change in the next 3 to 5 years?
- Do you have 10%-15% down ready to go without drawing on your daily operating reserves?
- Is your revenue stable enough to carry your debt service through an unexpectedly slow quarter?
- Do you know your price range, your absolute must-haves, and what you’re willing to compromise on before you look at a single listing?
- What does your current lease situation look like? How much time is left, and is a renewal decision creeping up?
- Have you actually talked to an SBA lender about what you would qualify for?
What Good Guidance Actually Looks Like
Most business owners tackle this question alone or get advice from people who have a financial stake in one specific answer. A good commercial broker’s job is to help you find the right path for your unique situation, not just push you toward a transaction.
The conversation needs to start with your business, not a property. What are you actually trying to accomplish? What does your cash flow look like? Where do you want to be in five years? An agent who skips those questions and jumps straight to showing you listings isn’t giving you advice. They’re just giving you options.
If you’re approaching a lease renewal, now is the time to have this conversation, not after you’ve already signed another five-year term. In Richmond’s current market, there are specific neighborhoods where buying is highly competitive, and others where leasing still offers far more flexibility. That local context really matters.
Let’s Run Your Numbers
The real answer comes from a conversation where someone runs your actual numbers against your specific business goals, well before you commit to either direction.
If you’ve ever written a rent check and wondered whether you’re making a mistake, that’s reason enough to have the conversation. You don’t need a lease renewal coming up or a property in mind. You just need to want the answer.
Reach out, and we’ll help you figure out which path makes sense for your business. Contact us today to get started!