Every month you pay rent on your building, you're buying equity — just not for yourself. But that doesn't automatically mean buying is right: ownership locks up capital, adds risk, and only pays off if you stay long enough. This guide runs the actual 10-year math — lease vs. buy with an SBA 504 loan at 10% down — and shows exactly where the break-even points sit.
The Question Behind the Question
The rent-vs-own decision isn't really about real estate — it's about where your capital works hardest. Buying converts a monthly expense into equity but ties up cash and flexibility. Leasing preserves both but guarantees you'll face rent escalations and renewal risk forever.
Three numbers drive the whole analysis:
- Your current rent (and the escalation clause in your lease — typically 2% to 4% per year).
- Your all-in monthly ownership cost — mortgage principal and interest, property taxes, insurance, and maintenance.
- Your holding period — how many years you realistically expect to operate from this location.
Get those three right and the decision usually becomes obvious. Let's build the comparison.
What Buying Actually Costs With an SBA 504
The SBA 504 program exists precisely for this scenario: owner-occupied real estate with a small down payment. The structure has three pieces:
| Piece | Share of Project | Source |
|---|---|---|
| First mortgage | 50% | Bank or non-bank lender |
| CDC/SBA debenture | 40% | CDC (Certified Development Company), fixed rate |
| Down Payment (Equity Injection) | 10% | You (15% if under 2 years in business or special-purpose property; 20% if both) |
Two features matter enormously:
- The CDC portion carries a fixed rate for 25 years — no refinance risk on 40% of the deal.
- Soft costs (appraisal, some closing costs, even certain renovations and equipment) can often be rolled into the project total.
Compare that to a conventional Commercial Real Estate (CRE) Loan, which typically wants 20% to 30% down and may include a Balloon Payment at year 5 or 10. For most owner-occupants who qualify, the 504 is the sharper tool. Our commercial real estate financing page covers the loan structures in more depth; here we're focused on the decision itself.
The 10-Year Side-by-Side: A Worked Example
Assume a business currently paying $8,000/month in rent (with 3% annual escalations) is considering buying a comparable $1,000,000 building. Illustrative SBA 504 structure: $100,000 down, $500,000 bank first mortgage at roughly 7% over 25 years, $400,000 CDC debenture at roughly 6% fixed over 25 years. (Actual rates vary with the market and your profile — treat these as directionally realistic, not quotes.)
| Line item | Keep leasing | Buy with SBA 504 |
|---|---|---|
| Upfront cash | ~$0 | ~$100,000 down + ~$30,000-$50,000 closing/soft costs |
| Monthly P&I | — | ~$6,100 |
| Taxes, insurance, maintenance | Often passed through in NNN leases anyway | ~$1,800/month (varies widely) |
| All-in monthly, year 1 | $8,000 | ~$7,900 |
| Escalation over time | +3%/year → ~$10,400/mo by year 10 | P&I fixed; taxes/insurance drift up |
| Total 10-year outlay | ~$1,100,000 | ~$950,000 + $140,000 upfront ≈ $1,090,000 |
| Loan balance at year 10 | — | ~$720,000 remaining |
| Property value at year 10 (2%/yr appreciation) | — | ~$1,220,000 |
| Equity at year 10 | $0 | ~$500,000 |
Read that bottom line again. Both paths cost roughly the same in total cash out the door over a decade — but the owner walks away with around half a million dollars in equity from Amortization plus modest appreciation, while the tenant walks away with a stack of canceled rent checks.
There are also tax dimensions — Depreciation deductions, mortgage interest deductions, and the common strategy of holding the building in a separate LLC and having your operating company pay itself rent. Those often improve the buy case further, but talk to your CPA; the details depend on your entity structure.
▦Estimate your commercial real estate paymentsRun the numbers in the commercial real estate estimator →▸When Buying Clearly Wins
The math above assumed a lot of things went right. Buying tends to be the clear winner when most of these are true:
- You'll stay 7+ years. Transaction costs (roughly 2% to 5% to buy, 4% to 8% to sell) need time to amortize. Under 5 years, they can wipe out your equity gains.
- Your rent is at or above the projected mortgage payment. If ownership costs the same monthly cash flow but builds equity, the decision is nearly automatic.
- Your rent is escalating fast. In hot markets with 4%+ annual increases, a fixed-rate 504 is a hedge against your own landlord.
- You'd customize the space anyway. Tenant improvements you pay for in a leased space are gifts to your landlord. In a building you own, they're capital investments.
- You can occupy 51% and lease the rest. Tenant income offsetting your mortgage is one of the most powerful and underused plays in small-business finance.
- The down payment doesn't strain you. After the equity injection and closing costs, you should still have several months of Working Capital in reserve. See how much working capital you actually need.
When Leasing Clearly Wins
Buying is not a default upgrade. Leasing is genuinely the better choice when:
- You might outgrow the space within 5 years. A fast-growing business that buys a building sized for today often ends up a reluctant landlord — or a motivated seller — at exactly the wrong time.
- Your capital earns more inside the business. If $140,000 deployed into inventory, equipment, or hiring returns 25%+ annually, real estate's high-single-digit total return is a downgrade. Opportunity cost is the most commonly ignored line in this analysis.
- Your location needs may change. Retail concepts testing markets, businesses dependent on shifting foot traffic, or companies eyeing relocation should not anchor themselves.
- The local market is overheated. Buying at a peak can leave you underwater on Loan-to-Value (LTV) if values correct, complicating any future refinance.
- Your financials aren't loan-ready yet. Lenders typically want a DSCR around 1.15x to 1.25x, two to three years of returns, and reasonable credit. If you're not there, a year of cleanup often beats a marginal deal. Our documents checklist shows exactly what underwriters will ask for.
Finding Your Break-Even
A rough back-of-envelope you can run in ten minutes:
- Total lease cost over your horizon. Current rent × 12, grown by your escalation rate each year, summed over your expected years in the space.
- Total ownership cost. Down payment + closing costs + (all-in monthly ownership × months) − projected equity (loan paydown + conservative appreciation of 1% to 2%/year) + selling costs if you'd exit.
- Adjust for opportunity cost. What would the down payment have earned deployed in the business instead?
For most owner-occupants, the crossover lands somewhere between year 5 and year 8. Stay shorter than that and leasing usually wins; longer and buying usually wins — often decisively, because after the break-even every additional year of fixed P&I versus escalating rent widens the gap.
How to Move Forward if Buying Makes Sense
If your math points to ownership, sequence it like this:
- Get your financials loan-ready — 2 to 3 years of business and personal tax returns, current Profit & Loss Statement (P&L), a Personal Financial Statement (PFS), and a Debt Schedule.
- Get prequalified before you shop. Knowing your realistic budget and structure (504 vs. 7(a) vs. conventional) makes you a credible buyer and shapes your Letter of Intent (LOI).
- Compare multiple lenders — rates, fees, and prepayment terms vary more than most owners expect. This is exactly what a marketplace is for: EQ Funding routes one application to a network of lenders who compete for owner-occupied CRE deals, so you can compare Side-by-Side Offers instead of taking the first term sheet your bank slides across the desk.
- Budget the timeline. SBA 504 purchases typically take 60 to 90 days to close — coordinate with your lease expiration so you're never negotiating a renewal from a position of weakness.
The honest bottom line: buying your building is one of the highest-leverage financial moves available to a stable small business — and one of the worst moves for a business that's still figuring out its footprint. Run the 10-year math with your real numbers, be brutally honest about your holding period, and let the break-even tell you the answer.