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Buying vs. Leasing Office Space: Which Is Best?

by Byrne Anderson
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Did you know that it costs up to $23 per square foot when leasing property for use as office space for your business? There is a long-standing debate about which is the better option when it comes to buying vs leasing commercial property for your business. Renting property has its benefits as does buying property.

Some people will say that you’re better off making payments towards owning something while others will tell you that it is better to have someone else be responsible for things like building maintenance. If you’re on the fence about which route to take when it comes to commercial property for your business needs then you’re in luck.

You’ve come to the right place to learn about buying vs leasing office space and the pros and cons of each. Keep reading this article to learn more.

Pros of Buying Commercial Property

There are many good things that come with choosing to buy commercial property for your business to operate out of. A big reason that many business owners choose to move forward with buying property is that it gives them a chance to build equity. When you finance the commercial property you’ll gradually build equity in the property with each monthly payment.

Your commercial property also becomes an appreciating asset. You’ll find that the longer that you hold and maintain it, the more valuable it becomes on the open market. If you did decide to sell your business at some point then you’d get a lot more for it if sold together with our commercial property.

There is also the possibility of getting rental income if you purchase property for your business. Most businesses don’t occupy the entire portion of the building that they purchase. You can rent out that extra space to other businesses in your area that needs a place for their employees to work.

Renting out the extra office space in your office is a perfect way to get additional revenue or you can use it to help make the payments on your loan. This also is a great way to take advantage of additional tax breaks. The interest that you pay on the commercial property that you’ve purchased is deductible as a tax break when tax season rolls around.

Cons of Purchasing Property

The main reason that people avoid purchasing property for their business is the upfront expenses that come with such an investment. The down payment on commercial property is often in the range of 10 to 40 percent which is a significant amount of money, especially for a small business owner. That doesn’t include the realtor fees and closing costs for the property.

You could always try to finance the commercial property but that is tricky and not every business owner will qualify. Even if you do qualify, it is possible that you’ll face an interest rate that makes it a difficult or untenable investment for your business to make.

There are also penalties that come with your loan if you finance the commercial property for your business. The penalties happen if you move forward with prepayment of the loan since you’re paying it off before the scheduled date that everything is due.

You’ll have a greater amount of control when you decide that buying property is the right move for you, but this also makes you liable for any injuries that people suffer on your property. You’ll end up needing to spend additional money on liability insurance to make sure that you’re covered in the event that injuries do occur.

Another thing that you need to consider is the loss of liquidity or value of the commercial property after you purchase it. There is no telling what will happen with the economy, but if it takes a turn for the worse then you could be stuck with a depreciating asset that is difficult to sell.

Pros of Leasing Property

One of the primary reasons that business owners choose to lease office space is the additional liquidity they have. You’ll have a lot more money to play with and invest into growing your company if you choose to lease office space for your employees. Another reason that it is a good idea is the ease of budgeting for it.

Renting property comes with a fixed monthly expense that you owe the landlord for using the office space. You’ll know what that expense is from month to month and can account for it when looking at the amount of money your business has. That knowledge makes planning a path forward much easier for you and your management team.

There are also tax breaks that you’ll enjoy when you decide that renting property is the right move for you. You can deduct your lease payments and property insurance as well as your utility expenses when tax season arrives.

The additional flexibility is also a big selling point for leasing. It is easier to qualify for leasing office space than purchasing a property.

Cons of Renting Property

The big drawback of choosing to rent is that you’re not building any equity and you down own an asset that will appreciate over time. You also won’t have a ready source of passive income if you choose to rent office space for your business. You won’t be the landlord which means that you can’t rent out extra space to other tenants and collect the money from that.

You also need to think about the budget for paying rent. Rent isn’t cheap and you should expect your rental payments to be higher than the cost of paying your mortgage if you buy commercial property.

Decide if Buying vs Leasing Is Right for You

When it comes to buying vs leasing office space, there are a lot of things to consider. Both bring a lot to the table, like the flexibility of leasing property and the tax breaks that come with that option. Opting to buy commercial property is great because you build equity which makes your company more valuable and you have a source of secondary income.

For more helpful articles, make sure you check out our blog.

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