Buying your business premises and leasing them solve the same immediate problem: somewhere to operate. They create different cash commitments, responsibilities and choices if the business needs to move.
Compare the actual properties and agreements, not just rent against a mortgage repayment. This guide is for an owner-operated business considering a purchase or a lease from an unrelated landlord. It does not assess an investment purchase, an SMSF strategy or a related-party ownership structure.
Will both premises let your business do what it needs?
Start with the operating requirements: location, customer and delivery access, size, layout, power, parking and room to change. A cheaper space is not an equivalent option if it cannot support the business.
Business.gov.au's premises guidance recommends defining these needs and checking zoning and permits with the relevant council. Ownership does not remove planning or other applicable restrictions. For a lease, check the permitted use and any required approvals for fit-out or alterations as well.
Write down your expected occupancy period and what might force an earlier move. A plan to expand, reduce space or change equipment belongs in the comparison alongside the money.
Which cash commitments belong on each side?
Separate the initial cash call, ongoing payments and later obligations. Use dated quotes and the proposed agreements; an unknown amount is not zero.
- Buying: your contribution to the price, purchase and finance costs, fit-out, loan repayments and the ownership expenses you will carry. Confirm which costs are paid separately and which are deducted from loan proceeds.
- Leasing: security, advance rent, your advisory costs, fit-out, rent reviews and the outgoings, insurance or maintenance allocated to you. Record any agreed incentives and their conditions.
- Leaving or changing: identify sale or finance-exit costs on the purchase side, and lease exit, relocation and any make-good obligations on the lease side. Confirm what can remain of the fit-out.
For NSW retail leases, the Small Business Commissioner's tenancy guide explains outgoings, security, rent reviews and make-good. Those rules are not a national template for every commercial lease. Have a solicitor identify the applicable law and interpret the actual agreement.
For a purchase's separate settlement calculation, use our NSW commercial cash-to-complete guide. A deposit already credited against the price must not be charged twice. Likewise, advance rent already included in the rental period is not an extra rent expense.
A hypothetical three-year cash comparison
Every figure below is invented, in Australian dollars, and is not a market quote or lending offer. Assume two premises meet the same operating needs. The same business would be the buyer and borrower, or the tenant; no rent between related entities is modelled. Compare the first 36 months, with both occupation arrangements continuing afterwards.
All stated cash amounts include any applicable GST; no GST credit, tax deduction, property growth or return on spare cash is counted. Identical utilities and ordinary business expenses are omitted from both sides. The listed ownership and tenant expenses are fixed assumptions for this exercise, not complete budgets for real premises.
Purchase assumptions
- Price: $900,000. A fictional $630,000 net loan funds part of it, leaving a $270,000 cash contribution.
- A fictional $40,000 allowance covers duty, legal, valuation, registration and finance setup costs, all paid separately in cash. Fit-out: $60,000. Initial cash required: $370,000. These amounts are not added to the loan.
- Loan: a five-year contractual term, with principal-and-interest payments at each month-end, calculated over 20 years. The hypothetical nominal rate stays at 7% a year, divided by 12 for this model.
- Other ownership payments: a fictional $12,000 a year for rates, insurance and maintenance; assume no strata or other ownership charges in this example. No other loan fees, extra repayments or offset balance.
The model's monthly repayment is approximately $4,884.38. Using unrounded payments internally, 36 repayments total $175,837.80: $127,547.00 interest and $48,290.80 principal. The balance still owing is $581,709.20; it is not assumed due at month 36.
Initial cash, repayments and the three years of other ownership payments total $370,000 + $175,837.80 + $36,000 = $581,837.80. That is the listed cash outflow, not the cost of consuming the property or a measure of investment return.
Lease assumptions
- A five-year lease. Year-one rent is $72,000, increasing by a fictional fixed 3% at each anniversary, including the starts of months 13 and 25. There is no rent-free period or incentive.
- Cash security: $18,000; the tenant's own legal advice: $3,000; fit-out: $60,000. Initial cash for these items: $81,000.
- Other tenant occupancy payments: $12,000 a year, covering the stipulated outgoings, insurance and maintenance. Rent is paid during each year; any payment in advance is already included in that year's total.
Rent for the first three years is $72,000 + $74,160 + $76,384.80 = $222,544.80. Adding initial cash and the other occupancy payments gives $81,000 + $222,544.80 + $36,000 = $339,544.80.
The cash security remains tied up at month 36. It has not been treated as rent, refunded or assumed to be lost. Its eventual return depends on the agreement and any valid claims.
What does the example establish, and what is still missing?
Buying uses approximately $242,293 more cash across these listed items in the first three years, even though its regular loan payments are below the fictional rent. This is a cash-planning difference, not a conclusion that leasing is cheaper overall.
The buyer still has the property and $581,709.20 of debt. The tenant has remaining lease commitments and unresolved end-of-lease costs. Neither arrangement ends at month 36. The purchase contribution and principal repayments are not equivalent to rent; nor is potentially refundable security an ordinary running expense.
No future property value, sale proceeds, fit-out recovery, tax outcome or alternative use of the upfront cash has been valued. A complete financial comparison needs those questions addressed, together with risk and the intended holding period. There is no calculated break-even year here.
For an actual comparison, replace every fictional number. Obtain the complete payment schedule and cost allocation. If repair costs, lease reviews, exit costs or tax treatment are unresolved, mark the relevant result incomplete rather than use this example's assumptions.
How much flexibility do the agreements actually give you?
Leasing can avoid buying an asset, but it is still a contractual commitment. Check the term, renewal options, rent-review mechanism, assignment or subletting conditions, and any relocation, demolition or make-good clauses with your solicitor. Do not assume you can leave simply because the business no longer needs the space.
Service NSW's leasing guide distinguishes retail and other commercial leases and highlights permitted use, renewal and repair responsibilities. Its NSW hospitality context should not be treated as advice on every business premises.
On the purchase side, ask what happens if the business outgrows the building or cash flow falls. Obtain advice on any proposed sale, alternative use, security release or early loan repayment. Do not assume a buyer, replacement tenant or refinance will be available when needed.
Record the loan's maturity separately from its repayment calculation period. In the example, using a 20-year amortisation does not extend the five-year facility. Our commercial loan maturity guide explains the confirmations needed as that date approaches.
What should you confirm before choosing a finance pathway?
Bring together three questions: can the premises support the business, can the cash commitments be carried, and what rights and obligations remain if plans change? A loan approval alone does not answer all three.
Confirm purchase and lease terms with a solicitor, and GST, tax and ownership-structure questions with appropriately qualified advisers. This guide does not recommend a structure or assume any tax benefit. For finance, compare the actual rate, fees, repayment schedule, security and conditions; government business-loan guidance also stresses setup, ongoing and exit costs rather than the interest rate alone.
Buying premises for your own business does not automatically qualify for a lease-doc loan. Our guide to commercial income-assessment pathways explains the distinction. The example's borrowing amount is not a lending limit; see how commercial property valuations and LVR affect the funding gap.
Flexdoc can help you discuss commercial property finance for the proposed purchase. Book a conversation with the property, borrower, business income and cash requirements in view.
Sources checked 19 October 2026. General educational information only, not financial, investment, legal or tax advice. The fictional cash comparison does not establish suitability, affordability or lender approval.