To lease or buy office space is one of the biggest financial decisions any business owner has to make. It doesn’t matter whether you’ve just established your company, or you’re planning to expand, you need to take some time to think about which of these two options is most suitable for you.
Keep in mind, that both of them come with virtues and downsides. There are so many elements that must be taken into consideration which makes things even more difficult, however, at some point, you have to pick one of these options.
If you’re never done it before, and you’re not too sure which of these two is better, then just take a look at our guide because it covers all essential aspects of it. Only then you’ll be able to decide which route is the best for your current goals.
Lease or Buy Office Space – Which Is Better?
Pros of Buying Office Space
If you’ve managed to set some money aside to pay for the property immediately, then a great thing about it is the fact that you own it one hundred percent right off the bat. On the other hand, if you apply for a loan, your monthly payments and down payment build equity in this property.
Your mortgage payments will be consitant and not subject to the market over the term of the mortgage.
Over the long term, if this property rises in value, then the office may potentially become a great investment vehicle. Now, in these types of situations, you should consider making use of a high-quality robo-advisor program to see whether this type of investment is worth your money. But what do robo-advisors represent?
Namely, these are digital platforms that offer algorithm-driven, automated financial planning services with barely any human supervision. Normally, they would ask you questions regarding your current financial situation and future goals by conducting a survey. Once they receive your answers, they will give you advice concerning your investments.
Now, let’s go back to the pros. Another benefit of it is the fact that when you’re owning commercial real estate, you can get a tax break on depreciation and interest.
Cons of Buying Office Space
The downside of it is the opportunity costs. Namely, if your company is generating a return on equity that oversteps a realist return you could produce on commercial property investment, then it definitely makes more sense to lease instead of purchasing the office space.
Flexibility can also be a downside. Unless you buy more office space than you need, you may have a problem expanding when the need arises.
Additionally, don’t forget that there is a time opportunity cost as well when you’re purchasing instead of renting commercial property. It’s all because when you own a business in real estate it certainly requires a lot more time, dedication, and commitment. That’s why taking this step isn’t as easy as you may think and in these instances, it would be smart to consult with a stock advisor.
And That’s Not Everything You Need To Know
Pros of Leasing Office Space
Leasing office space allows you more flexibility in growing than buying office space and does not take as much capital. Speaking of opportunity costs, it’s worth mentioning that real estate ownership take up more capiatal to start, due to the fact that property loans typically require loan amortization and down payments.
For those of you who have just blasted off your companies and are trying to scale operations, flexibility is a must. Who knows, maybe you’ll be forced to move to another location very fast, which you’ll be able to accomplish easily if you opt for renting.
Furthermore, if your firm is currently small, you could always share a space with someone to decrease expenses and then, at some point, look for something much bigger, of course, when the time is right. This is a step you can take only when you lease.
Cons of Leasing Office Space
One of the biggest downsides of renting is the fact that you are not able to accumulate equity and you cannot reap any benefits from capital appreciation.
Besides that, keep in mind, that rent can generally be very expensive, and your monthly rent payments will most likely go beyond mortgage payments on the same real estate over time..
As you can see, there are both positive and negative sides to both lease or buy office space alternatives. What you should do is carefully read everything that’s been written, and weigh things out to see what will benefit you more.
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