Lease vs Buy: Which is the Smarter Choice for commercial office space
Your company is growing and it’s time to move into a bigger, or maybe even a different space to meet the daily needs of your workers. The biggest question on company leader’s minds, “should we rent or buy commercial office space?” The answer, of course, depends on many factors — here is a guide to help you decide which path to explore further:
Why you might consider leasing
You’re not ready for a long-term investment. You haven’t found the perfect property to invest in for the long haul, or maybe you’re not ready to make a long-term commitment. It’s also a time and emotional investment —Owning real estate is a distinct, non-core business that will require your time, knowledge, and resources. Not having to worry about this frees you up to grow your business.
Tax benefits. Come tax time, you can deduct your lease payments and other rental expenses.
There’s no down payment. Investing in an office space, you have the benefit of a lower upfront capital investment. When you invest in an office space, you’ll need to factor in a large down payment, anywhere from 10 to 30 percent. When you rent, you’ll only need to pay a deposit that’s usually equal to one month’s rent, or first and last month’s rent.
Keeps your cash free. When you rent a commercial office space, this will free up more cash in the short term for you to invest back into your business or use for working capital.
No fuss maintenance. Depending on your rental terms, your property owner will likely be responsible for building maintenance and repairs. You’ll likely be responsible for keeping your office space clean and kept. Note, this could also be a deterrent depending on how quickly and efficiently the owner responds to any of your concerns.
A nicer space than you might have access to. It may be too costly to purchase an office facility in a high-end area, but with renting, you could have access to that high-end property you have your eye on for less money than if you purchased.
Flexibility. Leasing offers a variety of flexible options. You’ll have the option to choose a lease term that fits your company’s needs, the flexibility to grow or contract for both the short and long term, and the flexibility for an easy departure at the end of your rental period if you choose not to renew.
Why you might consider purchasing
Building equity and your brand. When you purchase a commercial space, you’ll be able to build equity. The longer you stay, your cost of ownership goes down on an actual cash basis. You can eventually use this equity as collateral if you decide to expand your business. Should it ever come time for you to sell, you could also make a nice profit. This may also create favorable perceptions in your market as your company is viewed as a stable player.
Increased cash flow. You can take advantage of low borrowing costs if you’ll be the owner-occupant. If the commercial space is large enough, you can rent out extra office space for supplementary monthly income.
Tax benefits. You can deduct interest payments on your taxes. Unlike a lease, you won’t be able to deduct your entire monthly payment, but you can deduct your mortgage interest expense.
Avoiding rent hikes. If you lease, your rent is likely to increase at renewal time particularly in high-demand neighborhoods, whereas if you purchase, your month-to-month fees will eventually decrease over time.
Design your own amenities. With a lease, you may be limited, or even restricted to the amenities you can offer your employees. With ownership, you’ll have greater control over the space and be able to scale and grow as your business expands.
You’re in charge of maintenance. While this could also be considered a point against purchasing, if you’re responsible for maintenance and repairs, you’re in control of how quickly you can make the repairs and get to control the vendors you use instead of being limited to previously approved vendors with a property management company.