Buy vs. Lease: What's the Right Choice for Your Business?
Ask These Questions to Weigh the Pros and Cons of Each Option
You've found the ideal location for your new office space, but now what? Do you lease the space or buy? Both decisions will entail a substantial financial commitment, but which is the right choice for your business?
Here are some helpful questions small-business owners like yourself should ask when choosing whether to lease or buy your next office space:
Once you've answered the above questions, you'll be better equipped to examine the pros and cons of either option.
Leasing May Be Better If...
The space isn't the perfect fit. If you're not 100% convinced that the commercial property you've found is perfect—either for now, or in the long-term—you may be better off leasing. This option will be best if the current space is a good fit for now, but doesn't offer expansion opportunities to meet your growing business' needs down the road.
You don't have a lot of cash on hand. Many small business owners reinvest every penny of profit back into the business, and don't have extra cash lying around. When you lease, you don't have to secure a down payment, which can be 10% to 30% of the purchase price. Instead, you'll need a smaller amount of cash to pay a deposit and a broker's fee for the lease.
You don't want the headache of building repairs. Most commercial leases are worded so that the landlord is responsible for maintenance expenses, repairs, and necessary building improvements. So, when the roof needs replacing, that won't be your financial responsibility as a tenant.
Owning May Be the Better Option If…
You want to build equity. When you purchase a commercial building, you will begin to build equity. You can then take a loan against the equity to expand your business, fund your retirement, or for other purposes. Plus, with interest rates at historic lows, this may be a good time to purchase.
You want to shield your company from rising rents. Another benefit of owning rather than leasing office space is that you'll stabilize your costs. With a fixed loan, your monthly payments will remain the same. No worrying about facing a 30% rent increase.
You want to enjoy the benefits of depreciation. While those who lease commercial property can deduct lease payments on their taxes, those who own have the opportunity to depreciate their building, usually over the course of 39 years. You can also deduct monthly mortgage interest on your taxes.
You want to increase cash flow by renting out extra space. Many small business owners purchase a building that offers them space to expand their business in the future. In the meantime, they rent out the extra space to increase cash flow and offset costs.
Depending on your business' needs and growth plans, either renting or purchasing commercial office space can be a smart decision for your company.