Should Your Office Space Be Leased Or Bought?

Although they may seem completely different, the same rules apply when you consider buying or leasing your home and when you buy or lease an office space. It is not that different when you plan on buying a home then when you are considering that for your business’s office space. To help with these decisions, business owners look into certain key parameters that help them make this vital and strategic decision.

Businesses do not grow overnight; they grow in stages and that may require a different office setting for each. For example you may have a team of 5 when you are starting out, in such a case, you can operate your business out of a small office. However, as soon as your business needs more manpower, you may need to officially move into a proper office space that caters to the needs of your business as well as your employees. So here is the big question: should you buy an office space or simply use one on lease?

Review Your Situation

You may be involved in a business that requires that you have face to face meetings with your clients, both current and potential. Think about it, a nicely furnished office is going to make a much better impression on prospective clients. But don’t be hasty about buying the first nice office you see. Evaluate your options and see if you can make the down payment necessary. If not, leasing would make more sense. Plus you will have to deal with market fluctuations which may affect your bottom line. For some office spaces you have to pay up a considerable amount of rent and maintenance, in such situations it makes sense to simply buy the office space for your business.

Moreover, some businesses require heavy equipment for day to day ops. Now when you have to move, you’ll have to move the equipment too. Such equipment is a hassle to move and it’s very costly to lug around when it comes to moving to a new place.

It’s also important to consider that you may be making eternal monthly payments for a place that you could own, and then maybe even resell someday. Buying the space is usually a smart investment.

Appreciation Of Property

Another reason why it’s a smart investment is because buying office space will generate long term rise in the value of property due to market appreciation. It is a great way to add to your retirement fund. That being said, you must also keep in mind that the value won’t just appreciate overnight.

Cash Flow Analysis

In order to comprehend fully the financial side of buying an office space, one needs to put together a comprehensive net present value cash flow analysis. This will take into consideration your prediction for things like what will the appreciation amount be, compared to the increase in rent, expenses and interest rates in the future. It may be tedious but numbers don’t lie, and the results will help you make an accurate decision.

Growth

The growth of your business should be a valid consideration point when making the decision of whether you should lease or buy. If your company is relatively new or in a high growth mode then the decision to lease the office space will allow room for flexibility as constraints on growth will be reduced. On the other hand, if your company is stable already then buying office space will ensure that your need for your own office in the future is met.

Wrap Up And Go

Some businesses operate in a way where they need to be temporary close to a location. These business need to be able to get up and leave when it’s time. If you were to buy a place it would take forever to sell it and move when you’d want.

Time Is Money

The issue with property management is that you need time and energy to work on it. Things will not be as simple when you simply paid for the maintenance and the cogs kept turning behind the scenes. Right now you are probably busy investing your time and effort running your business. Do have time to spare on overlooking office maintenance? What happens is that many businesses tend to invest in a larger property space according to their growth plans, now while they may not be using them they rent out the extra space and that’s when they have to manage that place as well as their own.

What You Give Up Instead

You must always take into consideration the opportunity cost of the money that you will be putting into buying an office. If the opportunity cost is high then you need to take into consideration leasing the space. Otherwise you will just regret the decision later.

Various Costs

Think about the different costs that you will have to incur. When you buy an office space, you need to think about what you will be paying off in the long term. If you have a long term fixed rate mortgage this will be easy to estimate.

No Down Payment

In most situations you have to purchase an office space and make a down payment of around 10 to 25 percent. On the other hand when you lease some office space you can relax as there is no burden of down payment there. However if you have enough money available that even after investing it in business operations you can easily pay up the down payment, it would be unwise to lease a place.

At the end of the day every business owner will make their own decision based on their strategy. There are entrepreneurs who though keeping the numbers in plain sight take risky decisions that are vital to their unique strategy, and how they want to see their business grow.