5 considerations before buying or leasing office space.

 
 

 

With the current economy and real estate market you may have found yourself wondering if you should buy your office space or continue leasing.  Of course, if you have a firmly established business in your area that you plan on keeping up for years to come then buying your commercial office space seems to be the best bet. Although being an “owner” has a nice ring to it, you may want to consider the option of leasing your office space, especially if you’re unsure about your business finances for now and the future. Here’s why leasing may be more beneficial:

Flexibility: Renting your office space offers your business the chance to grow into its location.  Along the road, as your business expands- be it with employees, equipment, or more; renting allows the opportunity to find office space that is in line with your situation. With buying you have what you have, and that’s it, until you decide to sell. Some business owners prefer the ease of knowing they are not chained to an office space when the time comes for them to expand or decrease operations. However, when leasing at the end of your contract term your landlord may not renew the contract at which point you will have to begin the hunt again.

Less money up front: When you buy commercial real estate typically you need to put down a cash deposit with your offer. These deposits can range anywhere from 1% to 10% of the total buying price. Once you have the property under contract it’s not unheard of that you must have 10% to 40% of the purchase price available in your bank or other accounts in order to get a loan and satisfy the down payment requirements set by a prospective lender.

Appreciation: When you buy your office building instead of leasing you now get to wear a second hat- Investor. If your area has appreciating land values then you can eventually sell your property at a profit. If you’ve purchased an office space that is larger than your business needs then you may suggest becoming a landlord and renting out the unused square footage. Both of these options are sure to turn a profit in an upmarket, though they are both more work than leasing.

Taxes: Typically businesses can deduct the full amount they pay in rent. Depreciation on commercial real estate is taken over 39 years so you may not be able to write off as much annually regardless of how much you put down for your down payment. However, you can deduct interest on the purchase of the loan, property taxes, and other qualifying expenses. It is best to speak with an accountant to see what deductions your business qualifies for.

Maintenance: Plenty of leasing clauses place the duty of maintaining the property on the landlord such as roof repairs, heating and cooling maintenance, or plumbing. When you own your office space you are responsible to the buildings upkeep.