Should You Buy or Lease Your Business Space?
There is no single right answer to whether you should buy or lease your business space. The same is true with many buy versus lease decisions. For example, should you buy a car and take on the responsibilities of depreciation, maintenance, and car insurance, or lease and let someone else worry about it? Here are some factors to consider when deciding whether to buy or lease office space.
If you buy, you’re suddenly a real estate investor. This is terrific if you are located where real estate prices are rising. But you should also consider the size of the space versus your needs. If it’s much larger than you need, you can lease the excess space, but then you’re a landlord as well as being a real estate investor and business owner. And sometimes property values go down instead of up and you could be stuck with space you can’t sell.
Buying involves a higher initial cash outlay. That’s because you’ll have to have a down payment, which is usually significantly more than what you’ll pay to enter into a lease. Plus you’ll have to consider costs of appraisal and building inspections as well as loan fees and interest.
If you buy, you’ll have a better idea of your fixed costs, particularly if you get a fixed-rate loan to buy your office space. When you lease, you will be subject to whatever changes the landlord wants to make once the lease is up.
Don’t forget about taxes. Usually businesses can deduct their rent in full. Owners can write off repair costs, but improvements to the space must be deducted over a period of many years. On the other hand, if you own, you can deduct interest on the purchase loan and property taxes.
Buying versus leasing office space is a decision requiring forethought and careful consideration.
