Whether you’re just launching your business or expanding, you need to consider whether you will lease or purchase your office space. Each option has its own benefits and drawbacks, but they both require a financial investment. If you’re still on the fence about which way to go, here are some things to consider.
The Pros and Cons of Buying
Purchasing your office space provides numerous benefits, but there are also some potential drawbacks that need to be considered. Purchasing real property is not the right – or practical – option for every business.
The Pros of Buying
Purchasing the property will provide your business with equity, which can be used as collateral in loans. You also maintain complete control over the property, and if you have additional space, you can rent it out to add to your revenue.
Provided you adhere to local ordinances, you can make whatever changes you want to the building and property.
Mortgage payments are steady, and interest payments will be tax-deductible. You can also claim building depreciation.
Because you own the property, you can sell it when you retire and use the profits to add to your retirement savings.
The Cons of Buying
Of course, there are some disadvantages to buying your office space. The first and most obvious drawback is that buying requires a significant capital investment. Commercial property is more expensive than residential property.
A higher purchase price isn’t the only additional cost. There are also closing fees and real estate agent fees. Along with a real estate agent, you’ll also need to hire a real estate attorney to guide you through the purchasing process.
And unlike with leasing, you are responsible for the cost of maintenance, remodeling and repairs of the building.
You also miss out on growth opportunities when you purchase the property. That capital investment could have been used to grow your business.
If you eventually outgrow your office space, you may need to sell the property before you can purchase new property.
The Pros and Cons of Leasing
Leasing your office space will have many advantages, but there are some potential issues that you’ll need to seriously consider before going this route.
The Pros of Leasing
The first and most obvious benefit to leasing office space is that it doesn’t require a significant upfront investment. Yes, you’ll have to make a deposit, but there’s no need to worry about making a down payment.
Lease payments are still tax-deductible, and it’s often more financially practical to lease in a nice area than to buy in a nice area.
Leasing can also be less stressful, as the landlord will handle maintenance and repairs. Some landlords will even remodel to suit your needs, and in some cases, a utility is included in the cost of the lease, such as water or waste management.
Because your capital isn’t tied in the property, your cash flow will be higher. Higher cash flow will help with your business’ credit rating. And if you outgrow your office space, you can simply move into a new one.
The Cons of Leasing
If you lease your office space, rent prices may increase each time you renew the lease. The landlord may also have strict rules that limit your use of the space, and repairs may not be as timely as you’d like.
If you went through a broker to find the property, you may need to pay an annual broker fee for the duration of your lease.
Before making a final decision, be sure to carefully weigh these pros and cons. You may find that buying is the right choice for you, or you may prefer the flexibility of leasing.