Should You Buy or Lease Your Office Space?

If you’re a small or medium size business owner, you’ve probably asked yourself more than once whether it makes more sense to buy than lease. The answer is, it depends.

To help you decide what course of action is best for your company, consider the following:

As a business, when you buy a property, there are several financial benefits:

• Monthly costs remain relatively steady since your mortgage payments are fixed
• Mortgage interest payments are tax deductible
• Like other capital expenses, you can ease your tax burden by depreciating the building
• You may be able to free up working capital if buying results in lower overall monthly costs
• If you have surplus space, you can use the additional rent revenue to increase your cash flow
• You can build equity in the building which can be used to finance retirement or other business interests.

Don’t forget that when you buy a commercial property, you’ll need a significant down payment. That may come at the expense of other areas of the business that need investment.

If location is a critical part of your business success, then owning your space may be a wise idea. The same holds true if your company has specialized or hard-to-move fixtures and equipment.

However, remember that being a property owner, especially if you have tenants, comes with both responsibilities and potential problems.

As a general rule, leasing often makes sense if your company is growing quickly, downsizing or in a period of uncertainty.

As with buying, leasing also has a number of financial advantages:

• You don’t need to come up with a down payment
• You can deduct your lease payments from your corporate taxes
• Under many lease agreements, major repairs and maintenance are the responsibility of the landlord
• It can be cheaper to lease than to buy in some high-demand areas (though those rents may see substantial increases at lease renewal time)

Another advantage of leasing is that it affords you the time to focus on running the business rather than being a property manager. That said ultimately, your decision to lease or buy will hinge on a combination of financial, tax, and personal considerations.

Not sure if you should lease or buy? Contact a RE/MAX Commercial REALTOR^® for useful information and insights that will help you make the right decision.