Purchasing or leasing commercial office space is a complex dilemma that requires thorough analysis and effective financial planning in the best interests of your organization. Buying real estate involves a large upfront capital investment, while leasing can keep your cash free to spend on your business. Leasing gives you access to high-end properties that would only be possible to buy with your company’s capital. Read on to learn more about the pros and cons of both options.
Convenience
The convenience of renting office space can be a big selling point. Getting into a lease is generally less expensive and faster than purchasing a commercial property, especially for a small business that needs access to hefty capital or financing. The maintenance cost is also bundled into your rent payment, making it simpler and more affordable than paying for repairs and upkeep yourself. However, if you want to make structural changes to the property, such as knocking down a wall, the landlord must approve those changes first. Also, leasing allows you to “test” out a new location without committing the time and money to a permanent move. It can be helpful for a growing company that wants to ensure its new site has the necessary foot traffic for success.
Equity
Renting office space Quincy MA, requires much less upfront capital than purchasing a property. You won’t have to make a hefty down payment or pay various upfront costs like an attorney, broker, and pre-prelease inspections. It leaves you with more liquidity to invest in growing your business.
On the other hand, purchasing a commercial property could require an investment of tens of thousands of dollars. In addition, buying a property can tie up your capital in a way that weakens your company financially. Ultimately, whether or not to lease or buy office space depends on financial, tax, and unique company factors. Consult your accountant and financial planner before making any major decisions. In some cases, you can even negotiate equity into your office lease.
Taxes
Buying or leasing office space is complex, and each business must consider its unique situation before making this important choice. Buying office space is a costly upfront investment. However, it offers the opportunity to gain equity in the property and may result in lower long-term costs. The cost of leasing office space is often more upfront, saving companies money that can be used for other expenses. Rent payments may qualify as operational costs rather than capital expenditures for tax purposes for your business. Owning office space can be expensive, especially if your landlord includes unusable space in the quoted square footage of a rental agreement. In addition, your company will need to pay tax on the property’s full value.
Security
Buying office space is a big investment that requires large amounts of cash that can’t be used for other expenses. That investment can make a company wealthy if it appreciates, but only if the property is affordable and managed effectively.
On the other hand, renting costs less up front and leaves more money for other expenses. It can also be cheaper in the long run if market trends go upward, but it is less secure than owning office space. The best option for a company will depend on many factors, including the business’s type, size and capital. It is best to consult with an accountant and financial planner before deciding.
Flexibility
If a new business starts, rent office space first to see how things go. Commercial real estate purchases involve a sizable down payment, mortgage payments, and property upgrades. It could tie up valuable working capital and prevent a company from growing. Renting also limits the time spent on maintenance and repairs, which can distract a company from its core operations. The landlord is responsible for these matters when you lease a property, which can save time and money. Buying commercial property can provide tax deductions on mortgage interest, property taxes and other expenses, making purchasing office space more financially beneficial for some companies. However, it can also limit a company’s flexibility to expand or move depending on market conditions.
