Office Space: Should You Lease or Buy?
If you are a small business, the decision you make about your location will lead you to choices in office space. Should you lease or buy? There are a few things to think about, when comparing the question of whether you should lease or buy office space, but they are important to consider. If you plan to purchase office space, you should be prepared for a larger cash outlay, even if you find an affordable price because you will need 10% to 25% as a down payment. This figure can be reduced substantially when you lease executive office suites because you may only need the first and last month's rent.
When you consider the rate of return you could make with your down payment money required for purchasing office space, you could be missing out on the opportunity to make other investments. The other thing that most businesses discover is that a cash cushion is a good thing to have around, especially in tough economic times, making executive office suites a more popular choice and a better financial decision.
While you can enjoy fixed costs by purchasing your office space, you have to worry about maintenance and upkeep issues, which are not a worry with leased space. You can typically sign agreements for a longer term to fix your costs, which is important, when you are just getting started. On the other hand, if your business suffers problems, it is less expensive to get out of a leased space, than it is to make mortgage payments on an empty office space.
You need to consider the growth of your company, when comparing the lease versus purchase question about your office space. A growing company will need larger facilities, leaving you with the hassles and expenses of selling your old space and purchasing newer facilities. It is easier to lease larger facilities, when you are going through the growing phase. If your company has peaked and stabilized, you might consider purchasing space and if you need to down-size, you could consider subleasing executive office suites, to others.
Commercial real estate investment might not be the best long-term investment, although it seems the commercial real estate market experiences 10-year cycles. While there are tax benefits to ownership, your expenses must be written off, over a longer period of time. For those that are leasing executive office suites, the entire lease payment is fully deductible, in almost every situation. You can always do a cash flow analysis to compare appreciation, depreciation, rental increases, interest rate increases and your expenses of upkeep. This can help you answer the question of whether to lease executive office suites or purchase your office space, but try to do the worst and best-case scenarios to get a realistic picture.
You might need to speak with a commercial real estate professional and look at the benefits offered at executive office suites, in different locations. There are a number of things to consider, when answering the question of whether it is better to lease or buy your office space, but with a little research, you can make the best decision for your business.