Office space - deciding whether to rent, lease, or buy
At some point during the course of the life of your business, you will need to decide whether you would like to rent, lease, or buy office space for your company.Whether you start out by leasing an office and end up with an office out of your own home, or rent an office for the entire time you are in business, there are certain things that you must consider before making a permanent decision regarding your office space.Please consider the following pros and cons concerning leasing or buying before making a decision about office space.
Renting or Leasing
- You don't need to have much cash on hand.You only need to be able to pay a monthly rent.
- If your business grows out of the current space it is in, you can simply find another larger office space to lease.You have no permanent ties to your present location (except for however long the lease agreement is signed for).
- There may be tax benefits to leasing.For example, you may be able to deduct the full amount of a lease payment when paying your taxes.
- When your lease expires the market may be unpredictable, and you may be forced to pay more than you planned to renew your lease.
- When your lease expires you may be forced to find another location for your office space, which could be quite inconvenient.
- Some leases allow for an annual cost increase on your lease, which could leave you with more expenses that you have budgeted for.
- You already know what your costs are going to be year after year, especially if you get a fixed-rate loan on the property.
- In purchasing a building you have also used your money as an investment.If the market appreciates while you own the building, you could eventually sell it for a price much greater than you bought it for.
- If your office space contains more space than your business needs, you may decide to rent out your extra space to other businesses.This makes you a landlord, which can be very profitable if done wisely.
- You may be able to write off repairs on your office space when paying your taxes.
- You need to have much more cash on hand to buy office space.
- Your business could outgrow the building that you recently purchased, leaving you left to either buy a bigger building or lease another building for extra space.
- If your building has extra office space and you decide to rent it out, you become a landlord-meaning that you must find businesses to lease office space from you.And empty office space means less money in your pocket and more money that you must pay on your mortgage.
- Although you may be able to do a tax write off for repairs on your office space, improvements or renovations must be deducted over a longer period of time.
In summary, renting or leasing may appeal to you if you don't have much money up front to spend on a building, if you aren't sure how much space you'll need, and if you don't want the hassle of dealing with the responsibilities of owning commercial property.On the other hand, buying office space may appeal to you if you are an established business with a large amount of cash available to you, if you plan on being in one place for a long period of time, and if you don't foresee your business experiencing a significant expansion in the near future.