Most businesses at one time or another are faced with the question of what is better, buying or leasing office space. There are many pros and cons that a business owner must weigh in either choice when making those decisions. First you should ask yourself a couple questions:
- 1.How long can you commit to a building?
- 2.How fast is your business growing?
- 3.How much can you afford to put toward your commercial space?
- 4.What location is prime for my business?
- 5.What is absolutely necessary for my business and employees?
Here are some things to consider when making the decision for your business.
Pros of Buying Office Space:
- Fixed Costs: Having a locked 20- or 30-year mortgage can give your business a fixed cost for office space.
- Additional Income: If you have additional space, you can rent out the unused space for additional income.
- Tax Deductions: Owning a commercial space may be able to provide tax deductions. You would need to talk to a tax professional for more information on this subject.
- Equity: You build equity in your office space, that if needed can be used as collateral for loans if needed. Once you retire you would be able to use the space as extra income if you lease or sell.
- Updates & Retrofitting: You would be able to make any changes to the building you want, as long as it follows all local, state and federal ordinances.
Cons of Buying Office Space:
- No Flexibility: A new or growing business will more than likely experience unanticipated needs. This may result in your owned office space to become inadequate.
- Upfront Costs: In the beginning, buying commercial office space will cost more. Things to keep in mind are, appraisals, maintenance costs, property fitting costs as well as any mortgage down payments or fees.
- Maintenance: When you own the building, it is your responsibility to pay for all repairs and everyday maintenance. You are also responsible for the outside maintenance like lawn mowing, landscaping, and snow removal.
Pros of Leasing Office Space:
- Prime Property: Leasing an office space, gives you the opportunity to rent in a more desirable area that you may not have been able to afford to purchase. Keep this in mind if you have a business that relies on foot traffic like a retail store or restaurant.
- Less Financial Commitment: Without the need to a sizable down payment you can keep some cash assets that you can use for other business needs.
- Perks & Amenities: If you lease an office space, you may receive additional benefits or amenities over the standard snow removal or trash service. You may have added benefits like utilities, water, housekeeping or more.
- More Time: Leasing an office space allows for more time for you to focus on what is important, running your business. Leave the stress of building maintenance and repairs to the property management.
Cons of Leasing Office Space:
- Variable Costs: When leasing you could see an increase in rent when it is time to renew your lease and if you used a broker to find your space you could be paying a brokerage fee the duration of your lease.
- Scheduling Conflicts: Repairs and maintenance are usually done quickly but sometimes may result in an interruption in business. It’s important to talk with your property management team about these concerns.
- No Equity: When you lease you will not be building equity in your office space. You will have less collateral if the need for loans is needed.