BUY or RENT this retail property?

[Dave Williams]

This is a BUY or RENT? question, with a 10 Year Exit Plan.  

Small summer only resort town.
RE prices, assume stable over 10 years as town is not growing appreciably and comm. properties tend to sit on the market for many years (5+).

I currently RENT 1,000 sqft showroom with small attached apartment for $20k/year.  It's a very good deal. = $1,650/m

Assume an income potential (profit) of $100k/year for my Retail business (gift/souvenir). I will continue that business.  

There is another Retail property close by selling for $900k.  It also has a 1,000 sq ft showroom + 2 apartments which could rent for $900 to $1200/m year round.  

What would I gain in BUYING that property vs staying in place and Renting @ $20k/yr?  Even assuming 3%/yr RE value increase, that is cancelled by loan interest. 

5 YR Balloon/30yr ammort. @ 5.8% = $4,700/m + 742k balloon.  10 YR Balloon = $665k

One huge premise is that I'm getting a good deal Renting now, with low risk. Probably better to stay with the good deal, and move on looking for other good deals to invest wisely such as building my own homes as I am a (unlicensed) builder also. Rather than buying into a market-priced (not a great deal) huge commitment, with uncertain outcome.  I do not have capital sitting around, and buying would strap me down to a huge 10yr financial burden and commitment.  It feels better to me to save up $100k here and there and invest it wisely, and maintain my freedom then jump into such a huge commitment.  But am I overlooking something huge?  I've not been a retail owner, so maybe that's also a perspective worth hearing.  

EQUATION:  

Cost to RENT 10 years = $20k/yr x 10 years = $200k TOTAL

VERSUS:  

Cost to BUY then SELL in 10 years: 

$100k down + 

(($4700/m - $2400/m apt rent = $2,300/m) x 12m/yr x 10yr)=$276k  +

$665k balloon 

= $1,040,000 COST over 10 years for $900k equity in property. 

This does not include maintenance, insurance, prop tax, vacancy.  Is it a fair assumption to say $10k/year added expense?  x 10 years = $100k  Add the difficulty of selling (Illiquid market) 

RENT: $200K VS BUY: $100k + $100k (expenses).

The elephant in the room is the gargantuan balloon payment that I would have to save most of my income for in order to pay in 10 years.

 BENEFIT of Buying: Location permanency: cannot get evicted. Locations in small towns could take 10 or 20 years to acquire, lose it and you could lose your business. The property could certainly go up in value $200k to $300k, and I would also have the potential of renting it as income producing property.   (Solution: possibly negotiate long term lease at current Rent location) 

RISK of buying:  Economic downturn could bankrupt.  Apartment vacancies would be very costly.

BENEFIT of Renting: No risk, can vacate any time in change of life/circumstance/economy. Leaves lots of capital for more lucrative investments: e.g. I'm a builder and otherwise plan to buy lot(s) and build homes (one or two) with more potential for appreciation gain.  Buying would lock me into a 10 year huge burden and in this situation, it does not seem to be worth the risk/burden.

What am I missing/leaving out?  

It appears they are approx. equal and that it comes down to a personal choice/decision?

I think building homes would increase in value ~$100k per each.

Is this even worth consideration?  Or is it an obvious decision to Rent?  There is a lot of gray area to consider, particularly the possibility of appreciation.  It's very hard getting data in this small town, and I believe that RE prices cannot continue to just go up as rentals seem to be near max rates in many areas. In other words, I don't think retail shops can afford to pay much more rent in most places, unless people start spending more.