Lease vs Buy: How Texas Business Owners Should Think About Their Commercial Real Estate

Leasing trades capital flexibility for predictability. You write a check every month, the landlord owns the asset, and you walk away at lease end with no equity. The advantage: minimal upfront capital, no maintenance liability, and full deductibility of rent.

Owning trades capital lock-up for equity build, depreciation tax shelter, and long-term cost predictability. With SBA 504 financing — the dominant Texas owner-user financing path — you can buy a building with 10% down (vs 20-30% for conventional), 25-year amortization, and a fixed rate on the SBA piece for 25 years. The math often favors ownership when your time horizon is 7+ years.

A simple rule of thumb: if your business will occupy the same property for 10+ years and you have or can finance 10-20% down payment, ownership economics typically beat leasing. If your time horizon is uncertain or your capital is better deployed in your operating business, leasing usually wins.

SBA 504 is the most powerful Texas commercial real estate financing tool that most business owners don't fully understand. It's a three-piece structure: a conventional first lien (50% LTV) from your bank, a second lien (40% LTV) from a Certified Development Company (CDC) backed by the SBA, and your equity (10% down).

The CDC piece is fixed for 25 years at a rate typically 50-150 bps below conventional commercial rates. The bank first lien is also typically 25 years amortization, fixed for the first 5-10 years. Combined, your blended cost of capital on an SBA 504 deal is meaningfully lower than conventional — sometimes 100-200 bps lower over the life of the loan.

Eligibility: your business must occupy 51%+ of the building (you can lease excess space to other tenants), be a for-profit operating business, and meet SBA size standards (most Texas businesses qualify). The deal must be a Texas commercial real estate purchase, ground-up construction for your business, or major renovation. Capital allocation rules: building must remain owner-occupied for the term of the SBA loan.

A handful of questions cut through the analysis:

• How long will my business need this exact location? If under 7 years, leasing usually wins. If 10+, ownership is increasingly attractive.
• Do I have or can I source 10-20% down without straining my operating business? If down payment requires draining your operating reserves, leasing is safer.
• Will I outgrow this building? If headcount or operations are likely to require 50%+ more space within 5 years, ownership of the current footprint may be a trap.
• How much excess space could I lease to outside tenants? Owner-user buildings with 49% leased to outside tenants generate cash flow that subsidizes your own occupancy — a major advantage of owning.
• What's my submarket appreciation thesis? Texas growth corridors (Austin, Houston, DFW) have shown strong long-term appreciation; secondary submarkets are more variable.
• Can I deploy this capital better in my operating business? If your business returns 30-40% on invested capital, owning real estate at 8-12% returns may be a poor allocation.

Some businesses should clearly lease for the foreseeable future:

• High-growth companies where headcount could double in 3 years
• Businesses with high return on invested capital where capital is best deployed in operations
• Pre-stable businesses (under 3 years operating, uncertain location requirements)
• Specialty operations where the right building rarely comes up for sale (cold storage, cleanrooms, specialized restaurant)
• Owners with cash-flow seasonality where fixed monthly rent is easier than mortgage + capex management

On the other side, signals that ownership likely makes sense:

• Your business has been in the same submarket for 5+ years and isn't leaving
• Your headcount and footprint are stable or slow-growing
• You have or can source 10-20% down without straining the business
• You're paying $6,000-$30,000+ per month in rent (the Texas commercial real estate sweet spot for SBA 504)
• You're tired of landlord buildouts, restrictions, and eventual lease renegotiations
• You want to build long-term wealth in tax-advantaged real estate alongside your operating business

For Texas businesses where neither pure lease nor pure purchase fits, build-to-suit lease structures with eventual purchase options can be the right answer. A developer builds the property to your specs, leases it to you long-term (typically 10-15 years), and includes a purchase option (often at fair market value or pre-set escalation schedule) that you can exercise after year 5 or year 10.

This structure de-risks the upfront capital commitment, lets your business stabilize before the ownership decision, and preserves flexibility if your trajectory changes. CRECO has structured several of these for Texas operators — they require careful negotiation of the purchase option pricing and lease economics, but they can be a great middle path.