Small Business Office Space: Should You Lease or Buy?
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Last Updated: 07/26/2016
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Whether your business is just starting out or has been up and running for a few years, the decision to lease or buy small business office space is one you'll likely run into. As with many of the choices you'll make as a small business owner, it's important to carefully review your finances, think about future expenses, and do a little research.
According to the National Federation for Independent Businesses, renting office space offers flexibility for growing small businesses, and monthly rent payments often qualify as a tax-deductible business expense. If you're not exactly the handy type, you're in luck — you can often negotiate with your landlord so that they are responsible for maintenance and repairs. There's less money to pay up front — usually the first and last month's rent — and typically a shorter period of waiting to move in. If your dream is for a storefront in the heart of downtown, you're probably more likely to find affordable rental space than purchasing a property in a well sought-after location.
While there are plenty of benefits to leasing a small business office space, it's important to keep in mind that renting does not build equity like buying does. There's always a chance that rent can increase beyond your means, causing you to uproot your business and move to a new location. Landlords also can also limit or prohibit modifications to the space—which can hinder your business from making cosmetic changes like painting and carpeting, or updating windows and doors.
Buying property is an investment, and its value often appreciates over time. While a down payment can take a huge chunk out of your finances, as a property buyer, you may be able to refinance and eventually pay off your mortgage. Even if you take out a long-term fixed-rate mortgage, payments are usually predictable and unlikely to fluctuate like rental costs. If you purchase more property than your business needs, you can rent out the space for extra income. Like renting, there are tax benefits — you can usually deduct the interest payments on your mortgage as a business expense. And unlike renting, you're your own landlord — you can do what you want with your purchased space, as long as it adheres to zoning codes.
Buying usually costs more upfront than renting, and a down payment can be taxing on your business' budget. There's a longer waiting time to close on property, preventing your business from moving into the new space right away. If your company goes under and has to put the property back on the market, it may take a while to sell. As the property owner, you're also responsible for upkeep and maintenance, which can get pricey if an unexpected repair is needed.
While finding a small business office space to rent can be as simple as responding to a sign in an empty storefront window, buying is a little trickier. Small business loans are an option if you decide to buy or update your existing property.