What does “lease-to-own” mean? A new product for small business real estate

withco’s “lease-to-own” partnership allows you to earn the down payment you need to purchase a commercial property by simply paying rent.

You’ve heard this story before: Beloved local businesses get displaced by a property sale or rising commercial rents. Our founder and CEO experienced this first hand when his parents’ Brooklyn grocery store was forced to close after 20 years in business when their landlord doubled the rent overnight. 

One way for small businesses to secure their space and their future is by owning their commercial property—the problem? Small business owners often lack the capital needed to pay for the 10% down payment on a mortgage. 

At withco, our mission is to help small business owners become property owners. We do this by employing a lease-to-own model that helps small businesses earn their down payment while leasing their property. 

But how exactly does lease-to-own work? Below, we break down the following: 

• Definition of lease-to-own
• How lease-to-own works
• How lease-to-own is different from other lease structures
• Lease-to-own vs. rent-to-own
• Is lease-to-own worth it? 
• Who qualifies for lease-to-own? 
• What types of properties qualify? 
• How to secure a small business mortgage
• How to get started with lease-to-own

Definition of lease-to-own 

At the most basic level, “lease-to-own” refers to an agreement that allows the tenant to eventually purchase the property when the lease runs out. This process is meant to give tenants time to acquire the capital needed to fully purchase the property, while offering them the security of knowing the space is theirs for the course of the lease. 

What’s different about withco’s lease-to-own model is that tenants actually earn a down payment over the course of the lease. This means that each time a tenant pays rent, they earn a percentage of the down payment needed to take out a mortgage on the property. At the end of the lease, withco gives the tenant the total amount they’ve earned—a minimum of 10% of the purchase price—allowing them to purchase the property from withco. 

We do all of this while still charging a fair market price for rent—most of our partners pay rent consistent with what they were already paying, or only slightly more.  

→Frequently asked questions about lease-to-own 

How does lease-to-own work?  

withco’s lease-to-own model is the simplest and easiest way to purchase commercial property. We help local business owners purchase their current space, find a new location, or expand to multiple locations. 

1. Qualify your business: First, we make sure your business is eligible for partnership. This means we take a look at your business’s financial information to determine if property ownership is right for you. If you’re looking for a new space, we also kick off the search process at this stage based on what you can afford. Ultimately, we want to always ensure that you’ll be able to successfully purchase your property at the end of your withco lease. 
2. withco purchases property: Once your business and desired space are approved for withco partnership, withco purchases your property and becomes your landlord with a 10-year lease. The lease terms will have a set rent and the eventual purchase price from the start. 
3. Pay rent; earn a down payment: You pay rent to withco, just as you would with any normal lease, only now a portion of your rent is going towards a down payment credit that will enable you to purchase the property at the end of the lease term. In exchange, withco asks you to share your business’s financials on an ongoing basis so that we can work together to ensure you’re ready to purchase the property when the time comes. 
4. Purchase your property from withco: At the end of the lease, withco gives you the down payment credit so that you can take out a mortgage on the property, effectively buying the property from withco!  

→Step-by-step guide to withco’s lease-to-own model

How is lease-to-own different from other lease structures? 

There are typically three types of lease structures for commercial properties: 

1. Gross Lease/Full Service Lease
   1. The tenant’s rent covers all operating expenses for the property, including taxes and utilities.
2. Net Lease
   1. Tenant pays a lower base rent while covering operating expenses like taxes and utilities. Net leases can be either double net (where the tenant pays property taxes and utilities in addition to rent) or “triple net” (where the tenant pays property taxes, utilities, and maintenance expenses in addition to rent).  
3. Modified Gross Lease/Modified Net Lease
   1. A combination of both a gross lease and net lease, where the lease is negotiated on a case-by-case basis between the tenant and the lessor. 

withco’s lease-to-own model operates as a “triple net lease” (or NNN) during the five-year lease term, but it adds the stipulation that the tenant can purchase the property at the end of a lease at a predetermined price while earning a down payment over the course of the lease. 

→Learn more about withco’s triple-net lease-to-own structure.

Lease-to-own vs. rent-to-own

Our “lease-to-own” model may at first sound similar to a common residential market offering known as “rent-to-own.” The main difference between our offering and most “rent-to-own” models is that “rent-to-own” agreements typically charge you more in rent, take the difference you pay over time, and then put it towards your down payment. 

With our lease-to-own partnership, you’ll never pay more than market rent due to the cost efficiency we’ve built into our model. While most landlords bake the risk of vacancy into their rent price, withco avoids this risk by only working with only the best local businesses. This allows up to 30% of your rent to go towards earning your down payment. At the end of your lease, withco will gift you the full down payment amount. 

→Learn more about the difference between lease-to-own vs. a mortgage. 

Is lease-to-own worth it? 

Our lease-to-own model is the easiest path to property ownership for business owners who don’t have access to the cash they need for a down payment on a mortgage, don’t want to tie up their cash in a single asset, or simply don’t have the time and resources to complete a complex transaction.  

In short, the benefits of a lease-to-own model are directly tied to the benefits of owning your property, which are many: 

• Secure your space for the long-term
• Earn income and enjoy tax benefits of owning 
• Make updates to your property as needed

→Learn more about the benefits of owning your commercial property

→How to make even more money off of your commercial property 

Who qualifies for withco’s lease-to-own model? 

Before we sign a lease agreement with any business, we undergo a thorough review of the business’s property and finances to ensure the small business owner is ready for property ownership. 

We use a broad range of factors to determine eligibility for our lease-to-own model, but generally speaking, we work with small businesses who have already demonstrated a strong level of success and are ready to own their property, but don’t have the cash for a down payment. Here’s a breakdown of what we consider: 

1. The small business must qualify as such under the Small Business Administration’s definition. This is because SBA loans are the most common mortgage takeover option, though they are not the only choice. 
2. The small business must demonstrate good financials. All withco partnerships undergo a rigorous underwriting process, and the small business needs to, among other factors, demonstrate that they can pay rent on time and be able to take over a mortgage at the end of the lease.  

→Meet some of our small business partners 

Types of properties we buy

As a commercial real estate investor, withco is actively purchasing small business properties nationwide that are valued at less than $5M. Have a property you think we’d like to buy? Check out a list of our recent transactions below.

→ Recent withco investments.  

How to secure a small business loan 

Once our partners complete their five-year withco lease, we help get them set up with a loan or mortgage so that they can purchase the property from us using the down payment they’ve earned. 

The most common loan our partners will use is a Small Business Administration loan, but this isn’t the only option. As always, we’ll be by your side to navigate this process and ensure you can successfully purchase the property from us. 

→Learn more about your small business mortgage options. 

Get started 

Ready to get started with the easiest way to own your commercial property as a small business? The first step is to reach out to withco, and one of our partners will be in touch with you directly to determine if you and your property qualify. 

You can also always email us if you have any outstanding questions before getting started: join@with.co 

We couldn’t be more excited to help more small businesses become property owners!