Leasing vs. Buying Office Space
The Pros and Cons
All growing small businesses may someday face the question of leasing versus buying office space. This question has many pros and cons, and a small business owner needs to carefully weigh the pros and cons of leasing or buying office space. In order to make your decision easier, here are the key facts of leasing versus buying office space.
The Pros of Buying Office Space
- Fixed Costs: Locking in your commercial mortgage long-term can give your business clear, fixed costs.
- Tax Deductions: The associated costs of owning and running a commercial space can provide tax deductions in the form of mortgage interest, property taxes, and other items.
- Additional Income: Owning your office can offer the advantage of renting out extra office space, adding another source of income.
- Retirement Savings: The prospect of owning commercial space and having the property appreciate over time, allows the owner to sell out and fund their retirement.
The Cons of Buying Office Space
- Lack of Flexibility: A new or growing business may experience unexpected needs in the future. If your business continues growing, your owned office space may become inadequate, forcing a sale of the property.
- Upfront Costs: Buying commercial space will initially cost far more upfront. There are property, appraisal, and maintenance costs along with a large down payment and possible property improvement costs.
The Pros of Leasing Office Space
- Prime Property: A leasing office space option provides a business with the chance to rent in an area with a good location and high image. If your small business is dependent on location and image, such as retail or restaurants, the leasing option is much more affordable.
- Free Up Working Capital: With your money not tied up in real estate your business can respond to opportunities in the market. In addition, your ability to borrow funds will not be as limited as with buying office space.
- More Time: Any type of ownership comes with headaches. A leasing option affords the time to focus solely on running your business.
The Cons of Leasing Office Space
- Variable Costs: With a leasing option you may be subject to annual rent increases and higher costs at the time when your lease expires.
- No Equity: While leasing you will be funding someone else's retirement with your lease payments. However, owning requires you to get involved in the property management business.
The answer to lease or buy office space is not clear-cut and easy for most small business owners. Your decision will hinge on a combination of financial, tax, and personal issues. As you explore the decision, bring in your accountant and financial planner to guide you with the best advice for your situation.
Once you have selected the right office space, consider creating a mobile office that allows you to work from anywhere. While your primary office space will be your traditional "home base," your mobile office can be a great way to stay in the loop, even when you are out of the office.