Renting vs Buying Office Space

Renting vs buying office space is an important financial decision for any company. There are drawbacks and benefits to both options, and you must decide which suits your business better, much like you would when assessing needs for business coverage. Cost, flexibility and investment opportunities are a few considerations to take into account. Another variable is where your business is located, since some markets are more buyer-friendly than others.

This decision rests on you, the business owner, but a few other players can add insight. A good broker can do a cost-benefit analysis of both leasing and buying to help decide which is the better financial decision. Another person to consult is a tax specialist who can advise you from a taxation perspective. Your company attorney can also assist with the paperwork filings necessary to close either deal.

One of the first things to consider is the length of time you plan to stay in the space. If you see yourself in one location for 10 years or longer, buying may be more beneficial. From an investment standpoint, your invested equity and tax benefits make ownership a wise financial decision. Many retail and commercial spaces are being sold way below market these days, and there is not a better time to buy.

A company can also become mired in a rigid situation when they choose to buy. Spaces surrounded by other structures limit the opportunity for growth. Renting is also more flexible if the company needs to relocate to a large space or a more desirable part of town.

Advantages and Disadvantages of Renting

As mentioned before, renting is the more flexible option if your company expects to grow in the near future. New start-ups do not need well established credit to rent compared to the stringent requirements of mortgage lenders. There is also far less capital required to rent as compared with making a downpayment. Rent can also be written off as a business expense. If your office space is part of a complex, you may have security included, and your landlord might take responsibility for structural damage and regular repairs.

There are several disadvantages to renting as well. Many leases have rate escalation clauses, so your rental rate is not fixed like a mortgage might be. At the end of the lease term, you have built no equity in the building, so there is no investment opportunity unless you lease to own. You may also be limited in what you can do to the structure to make it suit your business.

Advantages and Disadvantages of Buying

Buying or renting office space is an investment opportunity. As you pay your mortgage, you build equity in the property, and you can benefit from its rising market value. When it is available, some business owners may buy a parcel and rent the additional space to other businesses, becoming landlords and bringing in additional income. Owners can alter or expand the space as they please, giving their business some flexibility.

Owners do not have to worry about rent increases with a fixed-rate mortgage. Interest on the mortgage loan is also tax deductible, as is annual depreciation. There is also no danger of being forced out at the end of a lease term.

There are disadvantages to buying as well. Securing the capital to make a downpayment and the credit needed to get a loan can be a barrier for start-ups and small companies. In an uncertain market, the building could lose value over the years. Owners must invest more time in keeping their space well-maintained, and those who choose to become landlords must commit to that additional business venture.

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