Buying vs. renting office space: The truth behind it
Should you purchase an office space or is it better to rent a workplace for your team? Many would say that "renting money is making your landlord rich and not you". Right? However, does this same principle apply to office space? Consider there is a big difference between what you may be looking for in where you live and where you work.
Mainly, you may want to buy a home where your family will grow. Nevertheless, the very dynamic nature of business implies ever-changing needs. Future uncertainties, growth or downsizing, relocation, etc., should be taken into consideration. Weighing the pros and cons of buying and leasing office space will allow you to compare both options.
PROS of leasing office space
Premium property: When you rent office space you benefit from a premium location where access to public transport, a great variety of restaurants and nearby attractions all come with the same combo. Also, leasing will give you access to higher-end properties for less money than if you bought in the same place. Together with this, centers that offer office for rent invest in top amenities. This means comfortable furniture, gym with showers and luxurious balconies.
Focus on the core of your business: If you decide to rent office space you can focus on the company's economic real needs rather than being tied up in real estate. There are also more possibilities of you borrowing funds as with buying office space, and your leasing agreement may include maintenance expenses, repairs, and improvements. Additionally, with a leasing option, you don't need to worry about selling if you decide to move to another location or paying for space you won't actually use. With a lease agreement, you only pay for what you are using. Furthermore, if you need to arrange the space for it to be bigger or smaller (depending on your company's evolution), the center will make all of the necessary movements for the team to be comfortable.
Networking and community: One of the main perks of renting office space is you will have the opportunity to connect with other companies and professionals. Actually, shared office spaces encourage this by having great break rooms, comfortable spaces for having a coffee and different activities that involve tenants to mix up and network. In fact, breakfast gatherings, entrepreneurial guidance, and fitness classes are very common.
CONS of Leasing Office Space
Variable Costs: Although renting office space implies flexibility, people also need to consider that the price for rent may change over time. Meaning you may be subject to annual increases and higher costs when your lease expires.
No control: When you work from a rent office space you can make some modifications inside the office, but you need to ask for permission first. Don't be surprised if you are not allowed to paint any of the walls, put your company's logo outside of the door or create additional divisions for your layout. One other factor you can't control is the other companies you're sharing the space with.
These other tenants may be a distraction due to their hours of operation, compatibility or affect your business due to the services they offer.
No Equity: While leasing permits you to avoid property management business, you won't be benefiting from any tax deductions nor an asset.
PROS of buying office space
Tax deductions: When you own a property, you have many benefits. In the U.S.A, for example, you can deduct mortgage interest and property taxes. Besides, if you want to rent part of the space, you can also deduct them, plus a number of other expenses like property and liability insurance. As the Tax Policy Center explains, "the main tax benefit of owning a property is that the imputed rental income people receive is not taxed. Although that income is not taxed, owners still may deduct mortgage interest and property tax payments as well as certain other expenses from their federal taxable income. Additionally, owners may exclude, up to a limit, the capital gain they realize from the sale of a property".
Fixed costs: When you buy an office space your business will know what the office costs will be for the future. This means the costs are predictable and stable because they're based on a fixed-rate mortgage. Hint: This factor also goes in cons because owners lock themselves in a long-term mortgage and you're the one responsible for maintenance costs.
Liquidity: Once you own an office you can sell it or rent it out if your company's projects change, when you're in need of some cash or even when you decide it's time for a retirement. Besides, commercial office space can appreciate in value with economic booms and you can rent out extra office space adding another source of income.
Extra perk: You can decorate your office with as many renovations and improvements you want. If you always dreamed with a slide between the second and first floor, this is the chance.
CONS of buying office space
High upfront costs: When you opt to buy an office space, you need to contemplate down payments, appraisals, closing costs, improvements and all of the expenses behind moving in. On top of that, if you want to put the property on sale it make take up to a year to find the ideal buyer and have access to your cash.
Fixed costs and lack of flexibility: Although this factor was also in the Pros because you can estimate the amount of money required in terms of property expenses, you're tied to the least flexible lease option. This is because whether your company grows or there are fewer employees, space is the same. This may force you to put the property on sale (which will have its own costs), and continuously analyze your future space requirements.
How can we help?
OfficeList has been helping small companies and entrepreneurs find flexible office solutions for over 10 years. We have partnered with more than 2000 executive office suite operators throughout the US and Canada to help our clients find the right solution at the best, unpublished prices. All this we do at no cost to the client since the office space providers pay us a success fee from bringing them business.
You can see more of our articles to help you choose the best decision for your company.
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