Course 3: Lease or Own, the User’s Decision
Courses 1 and 2 looked through an investor’s eyes. This course takes the seat of the business that needs space: how to read a lease, what a deal is really worth after free rent and improvements, and when buying beats leasing.
By Michael R. Linton, Florida Broker #BK703722 · October 21, 2026
Run Your Own Lease vs. Buy
Use the lease-versus-buy and net effective rent calculators beside this course with your real quote and your real building.
For most businesses, real estate is the second- or third-largest cost after payroll. Leasing keeps cash in the business; owning builds equity and fixes the cost. Neither is right in general. This course gives you a way to decide for a specific space, and to negotiate better on whichever side you choose.
The case study used in every lesson
A growing company needs 6,000 square feet of flex/office space in Orlando for at least ten years. A landlord offers a ten-year triple-net lease at $18.00/SF rising 3% a year, with 4 months free and a $25/SF improvement allowance against a $40/SF build-out. A comparable building is for sale at $1,650,000 ($275/SF), financed with 10% down through an SBA 504-style loan at 6.50%. The figures are hypothetical; the method is the point.
Lesson 1. The Decision Is About Capital, Not Rent
The usual comparison, monthly rent versus a monthly mortgage payment, gets the question wrong. A mortgage payment includes principal you get back when you sell, and owning ties up cash for a down payment and improvements that could be used in the business. The right comparison is the present value of everything you pay and receive over the time you will occupy the space, at your business’s cost of capital.
Four things decide most cases: how long you will stay, how much the building will appreciate, what return your cash earns inside the business, and how much flexibility you need if you grow or shrink.
Check yourself: Why isn’t ‘rent is $X, a mortgage is $Y’ a fair comparison?
Lesson 2. Reading a Commercial Lease
Start with who pays what. In a gross lease the landlord pays taxes, insurance and maintenance out of a higher rent; in a triple-net (NNN) lease, the tenant pays them on top of base rent. Our lease is NNN: year-one base rent is $108,000 (6,000 SF × $18.00), plus about $42,000 of taxes, insurance and common-area costs.
| Term | In our lease | What to check |
|---|---|---|
| Base rent | $18.00/SF, NNN | Compare with comparable asking and signed rents |
| Escalations | 3% a year | Fixed bumps vs CPI; compound over the term |
| Free rent | 4 months ($36,000) | When it applies and whether it survives default |
| TI allowance | $25/SF | Who manages construction; what happens to unused funds |
| NNN charges | about $7.00/SF in year one | Caps on controllable expenses; audit rights |
| Term and options | 10 years | Renewal options, expansion rights, early termination |
Apply it on a real deal
- Put every proposal into the same table before comparing: base rent, escalations, free rent, TI, NNN estimate, term and options.
- Ask the landlord for the last two years of actual NNN charges, not an estimate. NNN costs are part of your occupancy cost.
- Project the rent across the whole term with the rent escalation calculator. A 3% bump turns $18.00 into $23.49 by year 10.
Lesson 3. Net Effective Rent
Asking rent is the headline; net effective rent is what the deal is really worth. Take the landlord’s side: over ten years they collect $1,238,099 of base rent, give back $36,000 of free rent and pay $150,000 of improvements. Spread evenly, that is about $17.53/SF. Discounted at 8% to account for the timing, with the improvements paid up front and the rent arriving over ten years, it is about $15.70/SF, well below the $18.00 headline.
Net effective rent is how you compare proposals with different packages. A landlord offering more free rent or a bigger allowance at a higher asking rent may be the cheaper deal, or not; only the effective number tells you. Test it with the net effective rent calculator.
Check yourself: Landlord B asks $1 more per SF but gives $15 more in TI. Which is cheaper?
Lesson 4. Tenant Improvements
Our build-out costs $40/SF and the landlord contributes $25/SF, so the tenant pays the difference: $90,000 up front. Allowances are really a loan repaid through the rent, so ask for a larger allowance at a modestly higher rent if cash is tight, or a smaller one at lower rent if it isn’t. Make sure the lease says who controls construction, what happens to unused allowance, and whether improvements must be removed when you leave. Size it with the TI allowance calculator.
Lesson 5. Lease vs. Buy Over Ten Years
Now the full comparison. Both options carry the same taxes, insurance and common-area costs; owning adds about $1.50/SF a year of maintenance and capital reserves that a landlord would otherwise cover.
| Lease | Own | |
|---|---|---|
| Cash up front | $90,000 | $454,500 (down payment, closing, build-out) |
| Year-one occupancy cost | $114,000 | $171,322 |
| Year-two occupancy cost | $154,500 | — |
| Annual loan payment | — | $120,322 |
| Net sale proceeds, year 10 | — | $933,371 (sale $2,217,462 at 3% a year, less costs and loan payoff) |
| Present-value cost at 8% | $1,189,187 | $1,214,595 |
The answer: leasing costs about $25,409 less in present value, out of more than a million dollars. That is close to a tie, and it hinges on appreciation. Owning wins only if the building appreciates faster than about 3.27% a year; below that, leasing is cheaper and keeps $364,500 more cash in the business. Owning also brings depreciation deductions and protection from rent increases at renewal; leasing brings flexibility to move or expand. Run your own case in the lease vs. buy calculator.
When lease versus buy comes out close, the numbers are telling you the decision is about something else: how sure you are you will stay, and whether the business earns more on its cash than the building will. Answer those, and the choice usually makes itself.
Apply it on a real deal
- Use your real figures: the actual lease proposal and an actual building for sale with a lender’s term sheet.
- Set the discount rate to what your cash earns in the business, not a mortgage rate.
- Find your break-even appreciation rate and ask whether you believe the building will beat it. Check local price trends on the Market Map.
- Decide what flexibility is worth: if there is a real chance you will outgrow the space in five years, run a five-year version too.
Lesson 6. Sale-Leasebacks
A business that already owns its building can turn it into cash without moving: sell it to an investor and sign a long-term lease. Investors price these on the rent and the tenant’s credit. A building leased back at $300,000 a year triple net sells for about $4,285,714 at a 7.0% cap rate. After 3% selling costs and a $1,200,000 mortgage payoff, the business receives about $2,957,143 to use in operations or growth.
The trade-off: you give up future appreciation and become a tenant with rent obligations for the lease term. A sale-leaseback makes sense when the business earns more on that cash than the building would, and when the lease terms (length, renewal options, increases) protect your ability to stay.
Lesson 7. Florida Specifics
- No more sales tax on commercial rent. Florida repealed its state sales tax on commercial rent effective October 1, 2024. Check older leases for clauses that still pass it through.
- Property taxes reset when a building sells. If you buy, budget taxes on your purchase price, not the seller’s bill; in an NNN lease, a sale of your building can raise your pass-through charges. See the Florida property tax calculator.
- Insurance and storms. Wind coverage is a large NNN line in Florida. Ask how the landlord allocates insurance increases, and read the casualty clause for what happens to rent after a hurricane.
- SBA 504 financing lets owner-users buy with about 10% down, which is why owning is within reach for many smaller businesses. See SBA 504 loans.
Capstone: Make the Call on a Real Space
Take a real space your business needs, or one you advise a client on, and write a one-page recommendation:
- Need. Square feet, location, how long you expect to stay, and how likely you are to grow or shrink.
- Lease option. Put the best proposal in the comparison table and calculate its net effective rent.
- Own option. A real building for sale, a lender’s terms, the build-out cost and Florida taxes and insurance at your price.
- Comparison. Present-value cost of each over your expected stay, at your cost of capital, and the break-even appreciation rate.
- Judgment. Flexibility, control, and what the business would do with the cash.
- Recommendation. Lease or own, and the terms you would negotiate either way.
Key Takeaways
- ✓Compare present values over your expected stay, not rent versus a mortgage payment.
- ✓Net effective rent is the real price: $15.70/SF on a $18.00 asking rent once free rent and TI are counted.
- ✓In our case, lease and own cost within $25,409 of each other in present value; owning wins only above 3.27% annual appreciation.
- ✓Owning ties up $454,500 in our example; leasing ties up $90,000.
- ✓A sale-leaseback turns an owned building into cash: about $2,957,143 in our example.
- ✓In Florida, commercial rent is no longer subject to state sales tax, and property taxes reset at sale.
Frequently Asked Questions
Is it better to lease or buy commercial space?+
It depends on how long you will stay, what the building will be worth when you leave, and what else your cash could earn. In our Orlando example, a 6,000-square-foot user pays about $1,189,187 in present-value terms to lease for ten years and $1,214,595 to own, so leasing is slightly cheaper. Owning wins only if the building appreciates faster than about 3.27% a year.
What is net effective rent?+
Net effective rent is the rent a landlord really receives after free rent and tenant improvement allowances, spread evenly over the lease. Our example lease asks $18.00 per square foot with 4 months free and a $25 per square foot allowance; its net effective rent is about $15.70/SF on a present-value basis.
What is a sale-leaseback?+
A business that owns its building sells it to an investor and leases it back, turning real estate equity into cash while staying in place. In our example, a building leased back at $300,000 a year triple net sells for about $4,285,714 at a 7.0% cap rate, releasing about $2,957,143 after costs and the existing mortgage.
Does Florida charge sales tax on commercial rent?+
Not anymore. Florida repealed its state sales tax on commercial rent effective October 1, 2024. Leases signed before then may still carry old clauses that refer to it, so read them closely.
Is this course free?+
Yes. Every lesson, calculator and data set is free. The course is original material and is not affiliated with, and does not lead to, any professional designation.
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Educational content only, not investment, tax or legal advice. The worked examples are hypothetical. This course is original material from Linton Global Solutions and is not affiliated with, endorsed by or a substitute for any professional designation program.