Modular Building Lease or Purchase – 3 Things to Consider
You’ve come to the conclusion that your school or business needs more space and you’re sold on the benefits of modular buildings. But there is still a question that remains. Is it better to lease or purchase a modular building?
Here are three things that should be considered:
- Do I want to own the building?
- Cash or financing?
- Does the term length matter?
These questions will be prioritized differently based on an organization’s particular needs and some organizations may have many additional questions that need to be answered. Like almost everything in business and education, there is not one correct answer that fits every scenario. Instead each case has its own set of requirements, restrictions, and goals; so making an educated decision requires thoughtful consideration of the information available.
1. Do I want to own the modular building?
Determining if you want to own the building is probably the easiest of the three questions to answer. Some businesses and many government entities have clear restrictions on what type of assets they purchase. The reasons behind these restrictions can vary significantly, but most of the time they are plainly defined.
Those who do not have clear cut restrictions pertaining to modular building ownership should consider their expectations for future expansion or relocation of the organization. Also, if the land on which your organization is located happens to be leased, building ownership may not make sense. If you have considered these points and are still unsure about whether you want to own the building, keep reading, some of the other ideas may help.
2. Cash or financing?
Understanding what a modular is going to cost you and deciding what method you want to use to pay for it is central to any modular building ownership decision. Obviously, cash is important to any business and so is the responsible use of financing. A decision has to be made based on the overall availability of cash and the need for that cash to fund other areas of your business or school, in comparison with the added cost of financing.
In most cases leasing a modular building will require the least amount of cash because monthly rates typically end up being lower than financing a purchase. Furthermore, upfront one-times such as delivery and set-up can often be financed by a modular building dealer and paid for over time (amortized). Leasing is typically the preferred option to preserve cash or when building ownership is not desired.
Should you have the borrowing capacity, financing the purchase of the modular building with a bank or other type of financial institution makes sense if at some point in the future you intend to own the building anyway. Additionally, modular building dealers may offer lease-to-own options which can provide a path to building ownership.
There are many positive aspects to leasing but it is vital to understand that leasing a modular building does not build equity or establish ownership in the building; instead you are paying for the convenience of building use without ownership. This is important because the lease payments you make will not directly reduce the purchase price of the building at the end of the lease. On the other hand, if you finance the purchase of the building, a portion of each payment will reduce the principal amount owed toward complete ownership at the end of the financing period.
3. Does the term length matter?
Modular building leases are almost always the best option when a need for space ranges from short to medium term, say 6 months to 36 months. If your need will extend well beyond 36 months, a purchase option may need to be considered. The real benefit to leasing modular buildings is that they provide a flexible option when you need space but are not quite sure how long you will need it. Modular building leases can be renewed easily and the flexibility to return the building at the end of any leasing period also exists.
To summarize, buying and leasing modular buildings both have their advantages as well as drawbacks depending on your situation. Understanding the mechanics of both and what is the best fit with your organization is ultimately what will drive the decision.
Are you ready to work through a few financing scenarios for your modular building needs? Contact a local representative with your questions at 877-438-8627.
While we want to provide you with practical information that can be used as a resource to help you make informed decisions when considering modular buildings, we want to be clear that we do not provide financial advice.