Pros and Cons of Leasing vs Buying Office Space
PROS of BUYING Office Space
Your business will have clear, fixed costs by locking in a long term mortgage.
You will have expense deductions (mortgage interest, property taxes, etc.) Although lease payments are usually fully deductible, there are more tax benefits available if you own.
You can add another source of income if you rent out extra office space.
You will have the potential to sell and fund your retirement.
CONS of BUYING Office Space
Lack of Flexibility
A new or growing business may experience unexpected needs in the future. If your business continues growing, your owned office space may become inadequate. You may be able to lease out the building at a profit and move your business into a larger space but this usually involves more upheaval than growing out of a leased space. You can avoid the cost and hassle of moving if you are in a lease and expand in the building you already occupy.
The upfront and initial cost of buying will be far greater due to property, appraisal and maintenance costs, a large down payment and possible property improvement costs.
Time is money and if you own office space, it needs to be managed. You can either hire out the function or do it yourself. Many businesses with long term growth plans buy more office space than they need and rent out the expansion space until they are ready to use it.
PROS of LEASING Office Space
Leasing provides the opportunity to rent in an area with a good location and high image. If you have a small business that is dependent on location and image, the leasing option is much more affordable.
Free-up Working Capital
Your business can respond easier to opportunities in the market and you will not be as limited in borrowing funds as you would be with buying office space.
Leasing allows you more time to focus solely on running your business.
If your company is relatively new and/or in growth mode, leasing allows more flexibility and fewer constraints.
CONS of LEASING Office Space
You may be subject to annual rent increases (usually 2-3% minimum) and higher costs when your lease expires. The market conditions will determine what you end up paying in rent over the long run.
You will be funding someone else’s retirement with your lease payments