You have decided to open up a small business and need to find space to operate. Since not all small businesses can be run from your home, you need to look at purchasing or renting/leasing business space. Every business is different, so purchasing may make more sense for one business while leasing makes more sense for another.
Here are some of the benefits and drawbacks to consider when deciding whether to purchase or lease/rent business space.
- Owning office space is like owning a home. The business space may appreciate over time and allow the owner extra money when they sell later. You are building equity.
- If you own a building or larger business space, you can rent out any extra space for additional income.
- You can lock in a fixed mortgage, where you will have clear costs that won’t fluctuate with each rental period.
- Relocation is not required. If you like your space, you can stay as long as you own it.
- Like owning a home, you have the freedom to remodel and redecorate as you see fit.
- There are more tax deduction opportunities available to you and your business. Expense deductions come from mortgage interest, property taxes, repairs, and depreciation.
- With the current economy and real estate situation, there are many business spaces available due to foreclosures that could allow you to purchase space at a cheaper cost.
- Purchasing office space requires more upfront costs. For example: down payments, closing costs, appraisals, realtor fees, and fees to title and insurance companies. A good portion of your money will be tied up.
- Once you purchase the space, your business location is set in one place. If competition moves in across the street, business traffic is slow in the area, or your business outgrows the space you purchased, it’s harder to pick up and move to a new location.
- You won’t have a building management who cleans and maintains your business space. You will have to hire your own cleaning and maintenance crews as an added cost to your business.
- Leasing is cheaper upfront, so your business has more money to respond to customer demands. Your money is not all in real estate.
- You have more time and money to focus on the business versus the business space. Many leasing opportunities come with management that owns the business space who take care of building problems, maintenance, and even cleaning responsibilities.
- If your business is growing, you can relocate to a new business space that better fits your needs.
- The full amount you pay in rent can be deducted from your business taxes in some instances.
- Rent is not a fixed price, so you could deal with rent increases and higher management costs at the end of your lease period.
- Leasing business space has no equity. Your money is not going towards anything other than rent.
- Since the space is not yours, there are rules and regulations that monitor what you can do with the space.
After looking over the benefits and drawbacks of purchasing versus renting/leasing business space, you should do some research for your particular situation to see which is a better fit. You can contact a legal or financial advisor to help. You can also check out http://www.lsemod.com/products/buy.html, where the LseMod program can outline some of the benefits and drawbacks you will face with your particular business.