It seems inevitable that the time will come when you must decide whether to buy or lease the office space you need. Businesses of all kinds face this dilemma, and what follows are some points to consider that will help you make the right choice.
1. Less money up front
You probably will have to come up with less money upfront if you decide to lease rather than buy. In addition to a down payment, buying would require you to pay for inspections, an appraisal and other fees.
2. Can you get a fixed-rate loan?
Buying a building can be a good idea if you are able to get a fixed-rate loan. With a lease, there may be a clause that includes an annual increase related to the Consumer Price Index (CPI), and conditions can change when the lease expires.
You can buy a building that suits your needs today, but this does not include room for expansion. Of course, if you outgrow the space in a few years, you can always sell the property and move to a new location.
4. Are you prepared to be a real estate investor?
Once you buy a building, you automatically become a real estate investor. For example, if you end up with more space than you need, you’ll become a landlord as you start renting space to others. In the right circumstances this can make sense, but you’ll have to be prepared for the extra work it entails, such as installing temporary fencing during construction.
5. Consider taxes
Taxes can also affect your decision. Generally speaking, a business can deduct all that they pay in rent. However, if you buy a commercial property, you can deduct property taxes, interest on your loan and other allowable costs and fees.
Your financial advisor may recommend placing your business inside a limited liability company (LLC), which would then lease the space to you and other businesses. The reasons for doing this are quite complicated, and it always best to consult with professionals concerning the financial and legal issues related to owning an investment property.
In most cases, leasing is best for those who aren’t prepared to make a large upfront investment, who are uncertain about the amount of space they will need later on, and who aren’t ready to assume the responsibilities that come with buying commercial property. At the same time, buying is the best choice for those who are well-established, who plan on occupying the property on a long-term basis, and who are ready to make a substantial investment in real estate.
About the Author: Vicky Hyde is a recent college graduate. She currently works as a freelance writer and editor. She enjoys cooking, mountain biking, and various outdoor activities.