Should You Buy or Lease Office Space?
As a business owner, you know that small decisions can have a big impact on the bottom line. So naturally, a big decision—like whether you should buy or lease office space—can have tremendous financial consequences. There are pros and cons to both, of course. Read on for information that will help you decide which option is best for your business.
The Pros of Buying Your Office Space
Consider purchasing office space when you are certain that your current needs will remain unchanged for a long while—such as 10 to 20 years. In this case, purchasing space can be a wise decision for a number of reasons including:
- The chance to build equity, which can be used to expand your business
- Establishing a fixed cost by locking in your commercial mortgage
- The ability to take advantage of tax deductions for mortgage interest, your property taxes and other things that go along with owning and maintaining the space
- Additional income that you may be able to derive from renting extra office space
- The possibility that appreciation on the property could help fund retirement when it’s time to sell
The Cons of Buying Office Space
In some cases, the commitment required with purchasing commercial space can be a negative. Business growth or the need to downsize may make owning property impractical. Also, you’ll want to consider the upfront costs of buying, which will include a sizeable down payment as well as the ongoing property and maintenance costs. For some, the best decision is to invest money and time in the business and not real estate.
The Pros of Signing a Lease
Large and small businesses often opt to lease the space they need and the benefits are clear:
Greater Flexibility. Whether you need more space or you need to downsize, leasing gives you the option of moving whenever your lease ends.
Conserve capital. With leasing, there isn’t a large down payment. You’ll likely need to pay a security deposit equal to one month’s rent, as well as a broker’s fee and attorney costs. But remaining available cash can be put toward working capital or expansion.
Tax deductions. Lease payments are deductible on your taxes as are some other rental expenses.
Lower maintenance costs. Depending on how the lease is negotiated, the landlord can be responsible for maintenance, repairs and improvements to the building in which you have space. Keeping the space clean will likely be your obligation.
Better location. If your business needs to be in a high-end area, then buying may simply be too expensive. In this case, leasing will cost less and still give you access to a high-end location.
The Cons of Leasing Office Space
There are two basic disadvantages to leasing. First, signing a lease means that there will likely be scheduled rent increases and possibly added costs when the lease ends. Secondly, leasing means that you are not building up equity.
Whether or not you should buy or lease office space is dependent on the circumstances of the business you own. You and your financial and legal advisers should carefully consider the decision before you sign a lease or a mortgage.
The information contained in this article is general in nature and should not be construed as financial, tax or legal advice. As with any financial or legal matter, consult your tax advisor and legal counsel.