When to Buy and When to Lease Office Space

Many small business owners struggle with the decision to buy or lease their office space. Leasing office space certainly makes sense for some business owners. Others can benefit from owning their own office space.

When is leasing an office right for you?

• Cash-in hand for business operations: Without having to put money down on an office, you and your business will have the money you need to operate your business.
• Focus on core business: Time is a valuable commodity and purchasing and managing a building takes time. By leasing, you can focus on your core business operations.
• Flexibility: Buying the “perfect size” building for your current needs can seem great, but you must be sure to plan for your future business growth as well. Therefore, you may prefer the flexibility of being able to move to a different space as the size of your business changes.

When is buying an office right for you?

• Put your money to work for you: Of course, when buying, more cash is needed up front for the down payment on the building, typically 15% to 20% of the value of the building, but it can be well worth the investment.
• Fixed costs: When leasing, your rates can vary by being tied to an escalation clause, but when buying and financing with a fixed rate loan, you will know your costs.
• Cash flow: You can also set-up a separate entity, such as an LLC, to purchase the building and then lease the space to other businesses, including your own, so your investment provides you with a positive cash flow.
• Tax savings: Building ownership can provide expense deductions for loan interest and depreciation and thus increase cash flow.
• Equity build-up: As the mortgage is paid off on the building, the owner will increase their equity in the building, and thus increase net worth. Down the road, the asset could be used as retirement income or transferred tax-differed into another investment property.
• Appreciation: Typically real estate appreciates in value over time, so by owning the building, you will reap the benefits of the appreciation rather than your landlord.

A client of ours recently closed on an office building that will yield a positive cash flow for the owner-occupant. Here is an excerpt of what the new owner said:
“The company I own has been renting office space for over 20 years and we’ve been paying a landlord. Now, my company will be in a newer space, a better location, paying a lower price per square foot, and instead of paying the landlord, it’s going to me. Plus, I was able to put less money down than budgeted. I just wish I had done this sooner.”

Certainly each case is unique.  While one option may be best for one, it would not be for another. If you would like to explore the possibilities further, we stand ready to assist you in this process. Contact us at contact@GaREinvesting.com or at 404-824-5542.