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Buying a Building for Your Business: The Owner-User Guide

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

Buying commercial property for your business, as an “owner-user,” means purchasing a building mainly to house your own company rather than to rent to others, and lenders treat it differently from an investment purchase. SBA’s 504 and 7(a) programs, for example, will finance an existing building only if the business occupies at least 51% of the rentable space, and a new building only if it occupies at least 60%. In return for a down payment and less flexibility, an owner-user gets control of the space and, under Proposition 13, a property tax base that generally rises no more than 2% a year.

This guide is for business owners in Sonoma, Napa and Marin counties who lease today and are weighing a purchase. It covers the lease-or-buy decision, confirming your use is allowed, the main financing paths, holding the building in a separate entity and the steps from search to move-in. For the wider market, start with our commercial real estate services.

Lease or buy: how to frame the decision

The right answer depends less on interest rates than on how sure you are about your space needs for the next decade. These are the trade-offs to weigh:

Factor	Leasing	Owning
Cash at the start	Security deposit, possibly build-out costs	Down payment, closing costs, inspections and any renovation
Cost over time	Rent rises under the lease’s escalation clause; renewals are renegotiated	Loan payments can be fixed; you carry maintenance, capital repairs and insurance
Property tax	Under a net lease, you pay the landlord’s taxes, which are reassessed when the landlord sells	Your purchase sets the base year value; annual increases are generally capped at 2%
Control	Alterations, signage and use need landlord consent	You decide, within zoning and building codes
Flexibility	Move or resize at lease expiration	Moving means selling or leasing out the building
Risk	Landlord’s sale or refinancing can change the relationship	The business and the building can struggle at the same time

If you lease now, read your lease before you shop. Our guide to commercial lease types explains how net and gross leases shift costs, and that comparison is the baseline for the numbers below. Business owners who already own and want capital out of the building can look at the reverse move, a sale-leaseback.

Confirm your use before you write an offer

A building that suits your operation physically may still not allow it legally. Zoning codes list which uses are permitted outright in each district, which need a use permit or other discretionary approval, and which aren’t allowed. Check the right jurisdiction: a property with a city address may be in unincorporated county territory, where Permit Sonoma, Napa County PBES or the Marin County Community Development Agency applies instead of the city.

Ask for the zoning district and read the use table for your specific activity, such as light manufacturing, medical office, food production, tasting room or contractor’s yard.
Check prior approvals. A use permit approved for a previous occupant may carry conditions on hours, parking or deliveries, and may not cover your activity.
Plan for building code triggers. A change in use or a major remodel can bring requirements for accessibility, fire protection and other upgrades. Our guide to CASp inspections and ADA compliance covers the accessibility side.
Check utilities and access: electrical service for your equipment, water and sewer capacity, loading, truck turning and parking for staff and customers.

Property type matters too. See our guides to industrial and warehouse space, medical office space and mixed-use buildings, and for wine businesses, tasting room space.

Financing an owner-user purchase

Owner-users usually choose among an SBA 504 loan, an SBA 7(a) loan and a conventional commercial loan from a bank or credit union. Here is what SBA’s own pages and regulations say.

SBA 504

Uses: buying, building or renovating buildings or land, and long-term machinery and equipment with a useful life of at least 10 years. It can’t be used for working capital, inventory, speculation or investment in rental real estate.
Structure: a Certified Development Company (CDC) originates the 504 loan alongside a senior lender.
Maximum: the 504 debenture is capped at $5,000,000 outstanding for each borrower and its affiliates, and $5,500,000 per project for small manufacturers (NAICS codes 31-33, with all production facilities in the United States) and for projects that cut the borrower’s energy use by at least 10% or upgrade plant and equipment for renewable energy (13 CFR 120.931).
Your contribution: at least 10% of project cost; 15% if the business has operated for two years or less, or if the building is limited or single purpose; 20% if both apply (13 CFR 120.910).
Terms: 10-, 20- and 25-year maturities, with a rate pegged to an increment above the current 10-year U.S. Treasury rate.

SBA 7(a)

Maximum: $5 million for a standard 7(a) loan.
Uses: acquiring, refinancing or improving real estate and buildings, and also working capital, equipment, refinancing business debt and changes of ownership, which makes it the usual choice when you are buying a business and its building together.
Eligibility: an operating, for-profit small business that can’t get the credit on reasonable terms from non-government sources and can show it can repay.

The occupancy rule that applies to both

Under 13 CFR 120.131, if SBA financing is for an existing building, the borrower must occupy at least 51% of the rentable property and may lease out up to 49%. For new construction, the borrower must permanently occupy at least 60%, may permanently lease up to 20%, and must plan to occupy some of the rest within three years and all of it within ten. So you can buy a building with tenants in it, as long as your business uses the majority of the space.

Conventional loans have no SBA occupancy rule, but lenders set their own terms for owner-occupied property; compare them on rate, term, prepayment terms and required down payment. Our comparison of SBA 504 vs. 7(a) loans goes further into structure and timing. Diamond may refer you to partners we work with, such as lenders and CDCs; you’re free to choose any provider.

Holding the building in a separate entity

Many owner-users put the building in its own LLC and have that entity lease the space to the operating company. SBA’s occupancy rule anticipates this: where the borrower is an “Eligible Passive Company” leasing the space to operating companies, those companies must meet the same occupancy rules.

The structure also has property tax consequences in California. Moving property between you and an entity you own is excluded from reassessment when it only changes the method of holding title and the proportional ownership interests stay the same (Revenue and Taxation Code section 62(a)(2)). Later transfers of interests in the entity can trigger reassessment, and a legal entity that has a change in control or ownership must file form BOE-100-B with the Board of Equalization within 90 days. Our guide to California property tax for investors explains those entity rules.

Write a real lease between the two companies, at terms you could defend to a lender or tax authority, and keep the entities’ books separate. This is general information, not legal or tax advice; talk to a California real estate attorney and a CPA or tax adviser before you choose how to take title.

Depreciation and cost segregation

Owning lets the property-holding entity depreciate the building, but not the land: IRS Publication 946 says land can’t be depreciated because it doesn’t wear out. Land improvements such as paved parking areas and fences are a separate category from the building itself.

A cost segregation study analyzes the purchase price to identify components that may belong in asset categories depreciated faster than the building. The IRS has published a Cost Segregation Audit Techniques Guide for examining these studies. Whether one makes sense depends on the price, the building and your tax position, so treat it as a question for your CPA, not a reason to buy.

Due diligence for an owner-user

Owner-users tend to focus on whether the space works and underweight the building’s long-term costs. A complete review covers both:

Title and survey: easements, access, encroachments and any recorded use restrictions.
Zoning and permits: your use, the permit history and any open code cases.
Physical condition: roof, structure, HVAC, electrical capacity, plumbing and fire systems, with a professional inspection.
Environmental: lenders often ask for a Phase I environmental site assessment, and it is especially important for former industrial or auto-related uses.
Accessibility: any CASp report and the cost of likely upgrades.
Existing tenants: leases, rent rolls and signed tenant estoppel certificates if you’ll keep tenants in part of the building.
Operating costs: property tax at your purchase price, insurance, utilities and maintenance.

Our commercial due diligence checklist covers each item in more detail.

From search to move-in: a typical sequence

Define the requirement: square footage, ceiling height, power, parking, location and the date you need to move.
Talk to lenders early to learn your budget and which loan type fits, including whether SBA occupancy rules work for the buildings you’re considering.
Search listed and off-market property. Diamond reaches likely sellers through our own client database and targeted off-market campaigns; we can’t offer access to other brokerages’ private listings, and MLS and NAR Clear Cooperation rules apply.
Submit a letter of intent covering price, deposit, due diligence period, financing period and closing date.
Sign a purchase agreement with contingency periods long enough for appraisal, environmental review and loan approval.
Complete due diligence and confirm use with the planning department.
Set up the ownership entity and the lease to your operating company before closing.
Close, then build out and move, coordinating with the end of your current lease.

Time the purchase against your current lease. If your lease runs longer than your search, ask whether it allows early termination, assignment or subletting.

Questions people ask

Is it better to lease or buy commercial property for my business?

Buying tends to make sense when your space needs are stable for many years, you have the down payment, and you want control and a predictable property tax base. Leasing keeps cash in the business and makes it easier to move or resize.

Can I rent out part of a building I buy with an SBA loan?

Yes, within limits. For an existing building, your business must occupy at least 51% of the rentable space and can lease the rest. For new construction, you must occupy at least 60% and may permanently lease up to 20%.

How much down payment does an SBA 504 loan require?

At least 10% of the project cost, 15% for a business operating two years or less or for a limited or single-purpose building, and 20% if both apply.

What is the maximum SBA loan for buying a building?

A standard 7(a) loan is capped at $5 million. The 504 debenture is capped at $5 million per borrower and affiliates, or $5.5 million per project for small manufacturers and certain energy projects, and is combined with a senior lender’s loan.

Can my LLC own the building and lease it to my company?

Yes, this is a common structure, and SBA’s rules allow it through an Eligible Passive Company. Talk to an attorney and a tax adviser about how to set it up and how later ownership changes affect property tax.

Will my property taxes go up when I buy?

Your purchase sets a new base year value at the price you pay. After that, increases are generally capped at 2% a year until the next change in ownership or new construction.

If you are weighing a building for your company, we can help you define the requirement, check the use and compare buildings against your lease. Tell us what you need through our contact page, or see our market pages for Sonoma County and Napa County commercial property.

Sources & notes

Last reviewed October 2026 by Matthew Martinez.