Owned and Occupied

For small business owners, deciding whether to lease or buy a building—and the acreage it occupies—can be daunting. It’s similar to an “own vs. rent” dilemma ever-present in the residential market. 

Ultimately, the decision whether to lease your space or buy a building is driven by the needs of your business. If you own a manufacturing firm or other company that requires a lot of equipment, or you need substantial storage space for equipment or other business materials, purchasing a building may be the right decision for you. 

Kenneth “KC” Totlis is a business owner who believes in the benefits of owning, rather than leasing, the property where his company is based. “Real estate is a standalone investment,” says Totlis, owner of Riddle Painting, a commercial paint company that focuses much of its work on K-12 public schools around Arizona.

In April of 2021, Totlis bought a larger facility in Phoenix after his company had outgrown its original purchased space. At the company’s then-location at Interstate 17 and Bethany Home Road, “we no longer had enough space for parking, and parts and projects were stacked up everywhere. We were jammed into every corner of that facility,” he says. 

“To help him find another, larger facility, Totlis enlisted the help of a commercial real estate broker and the help of Chris Sarver, who leads the Business Banking team at National Bank of Arizona. To help finance the new facility, he offered Totlis an owner-occupied commercial real estate (OOCRE) loan. 

For businesses with annual revenue of up to $15 million looking for a loan between $250,000 and $5 million, Sarver says business owners can benefit from the purchase of a property for their business. “Owning a building or facility means owning an asset that can appreciate in value, and that helps a business owner create wealth.”  

Riddle Painting bought a building near 27th Avenue and Indian School Road in Phoenix with more than twice the acreage of its previous facility and nearly double the interior square footage. The property has four buildings, one of which Riddle leases to a construction safety consulting firm. This income helps Riddle pay its monthly mortgage payment. The company also purchased a satellite property in Tucson to streamline operations outside of the Phoenix metro area. 

“Chris has been our one point of contact through the whole process of securing two loans,” Totlis says. “He’s been extremely helpful and very responsive. Walking us through the process for our loans and other aspects of our banking relationship has been great for us.” 

Small business owners may think buying a building is out of reach. But if you can manage the 20% down payment, you’ll likely save a lot of money in the long run, Sarver says. For a special-use business—one where the facility can’t be easily converted into something else (an auto shop, for example)—the required down payment would be 35%. 

“When you consider the out-of-pocket costs for a triple-net lease, for example, especially if you’re the anchor tenant and may have to pay a larger share for repairs that don’t directly benefit your business, buying a building may make much more sense for you and your business,” Sarver explains. 

Totlis agrees. “Just owning real estate is beneficial,” he says. “Owning your building allows you to build equity and gives you control over your facility and building. “You don’t have to renegotiate a lease and there are significant tax advantages.”