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Leasing vs. Buying Office Space: What’s Right For Your Business?

June 15, 2018

Leasing vs. Buying Office Space

 

At some point, most business owners face one critical commercial real estate decision: to buy or not to buy? Whether you’re a new company looking for your first site or a growing organization in need of larger headquarters, choosing between leasing office space and purchasing the property outright can pose a challenging question without a clear-cut answer.

If you’re a business owner struggling to decide if you should lease or buy commercial property, it’s important to weigh the pros and cons of each scenario carefully. Here are a few key facts to consider when making an informed final decision on what’s best for your company.

 

Renting Commercial Property: The Pros

Leasing office space offers several appealing benefits, particularly to new business owners or entrepreneurs with smaller enterprises. Leasing commercial real estate delivers potential advantages, such as:

 

Flexibility

Is your business experiencing rapid growth, with no end in sight? Or, perhaps you’re looking to downsize? A low commitment rental can prove an ideal solution to ensure you’re not stuck with more or less space than you need.

 

Location, Location, Location

From a cost perspective, many business owners find it’s easier to lease an office in a highly desirable location than it is to buy building in that zip code.

 

Customized Remodeling

Some especially motivated landlords will work with you to understand your company’s specific commercial real estate needs and remodel the interior design to best serve your business. Additionally, some landlords may also absorb various utility costs for adding cost savings.

 

Tax Benefits

Lease payments are not only tax-deductible, but they are often lower than mortgage rates, allowing you to keep a higher cash flow in your business and potentially boost your credit rating.

 

Renting Commercial Property: The Cons

Of course, with every prospective upside comes a downside. Leasing commercial real estate also brings with it some disadvantages that may eliminate it as a viable option. Some cons include:

 

Rent Increase

Every time your lease is up for renewal, you run the risk of incurring an increase in your monthly rental fee.

 

Repairs (Or Lack Thereof)

Even new commercial buildings require some occasional maintenance and TLC. Unfortunately, when you’re not the owner of a space, you’re at the mercy of your landlord’s timetable, which can be frustrating if you discover your repairs aren’t always his top priority. Working with a commercial real estate broker can help ensure your maintenance needs are managed.

 

Landlord Changes

Renting a space means you have little say over who your landlord will be – or if the landlord you have today will, in fact, be the landlord you have tomorrow.

 

Buying Commercial Property: The Pros

Purchasing commercial real estate is an investment that yields a multitude of financial perks such as:

 

Fixed Cost

There’s something to be said for locking into a fixed monthly payment. Knowing what your mortgage will be for the duration of your loan gives you a long-term look into your routine business costs as well as peace of mind that your monthly payment won’t unexpectedly go up (unlike a rented space).

 

Accrued Equity

The equity you accumulate with your owned property increases your asset portfolio and can also be used as collateral for business loans.

 

Tax Deductible

Not only are interest payments tax deductible, but you can also claim any building depreciation as well.

 

Appreciation

Yes, the real estate market does tend to fluctuate. However, over the span of several years (or even decades) both residential and commercial properties often appreciate in value, making it an excellent long-term financial investment.

 

Landlord Potential

Owning the building grants you an opportunity to build out extra space for tenant rental, instantly generating additional income.

 

Buying Commercial Property: The Cons

While owning a business property offers many financial benefits, there are a few potentially negative factors to consider before moving forward with the purchase.

 

Large Upfront Expense

Perhaps the most significant potential downside to buying a property? The large initial cost. Beyond a down payment, you will also incur several other upfront expenses such as appraisal and closing fees.

 

Lower Flexibility

Your new or growing company may have changing needs in the future. Owning a space means you’re locked into a specific amount of square footage, which may prove restrictive if your operations expand.

 

Maintenance & Repairs

As a building owner, you are responsible for managing repairs and absorbing maintenance costs which could take away from your company’s bottom line.

 

Contact Southpace Properties Today

Still not sure if you should lease or purchase office space? Contact Southpace Properties and consult with one of our on-site commercial realtors for more information on what makes sense for your business.

 

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