Should You Lease Office Space or Buy Office Space

The following factors, if relevant to your situation, may lead you to conclude that you should
Lease Office Space , rather than purchase Office Spaceor your business facility.

  • Your current cash flow is of vital importance - particularly in the early years, an Office Space lease may be better than a purchase from a cash flow perspective. This is because upfront outlays associated with an Office Space lease are usually less than those required with a property purchase. With an Office Space lease, your main initial cash expense may well be limited to your security deposit, plus first rent payment. With a purchase, you have to have the lump-sum purchase price, or at least a down payment on a mortgage.
  • You don't want maintenance duties - many Office Space leases place the duty of maintaining the property or Office Space on the landlord. Examples of such maintenance can include the things that are necessary to ensure the continued structural soundness of the building housing the Office Space, (such as roof repairs and periodic maintenance, tuckpointing, maintenance of heating and cooling, electric, and plumbing equipment), and those that go to the facility's ease of use and appearance (such as snow shoveling of walkways and parking lots and cleaning of windows and common hallways).TOP
  • You want to retain your mobility - maybe you're not sure that the facility housing the Office Space that you will select now will serve your needs several years in the future. You may need more or less Office Space, your target market may have moved elsewhere, or better-suited properties housing more attractive Office Space may later be built.
  • Your company's credit rating may not support a mortgage - if your business is rather new, or has experienced some financial difficulties, lenders may not be willing to extend it sufficient credit for a mortgage on the facility or Office Space. With the same financial situation, however, a property owner may well be willing to rent an Office Space to your business.
  • You haven't found a suitable property or Office Space to buy - you may want to buy Office Space , but have found that all properties and Office Space that would be suitable for your needs have been offered only on a Lease basis.TOP
  • The Office Space may be in an area of declining real estate values - you may find an Office Space that meets your needs, but you are concerned that the real estate values in the area are stagnate, or may actually drop in value. In this case, leasing Office Space makes sense: let the landlord suffer the effect of the declining values, not you!
  • A lease for Office Space may bring you tax savings - the money you pay in renting Office Space is deductible as a business expense. Depending on several factors, such as how long you have been in business, how profitable your business has been, and what portion of the purchase price or rent relates to land itself - rather than to buildings - a lease is likely to cut your near-term tax bill when compared with a purchase. (Money paid to buy a business property or office space is not deductible, but depreciation deductions on the building are available, as are deductions for interest paid on a mortgage.)TOP

Office Space Lease provisions. If you concluded that leasing Office Space makes sense, you will want to familiarize yourself with some of the basic Office Space lease provisions.
The following factors, if relevant to your situation, may lead you to conclude that you should purchase, rather than
lease, your business facility or Office Space.

  • You want control of the property and/or Office Space- maybe you intend to make substantial additions or renovations to the property and/or Office Space. Or you decide to change your business hours or change something else about the way you are doing business. If you rent your facility and/or Office Space, you may have to get your landlord's permission to make these changes. If, however, you own the property and/or Office Space, there will be no one looking over your shoulder (expect maybe the zoning board!) to question your moves.TOP
  • You can consider the long-term cost on Office Space- a lease for office space may sometimes beat out a purchase of Office Space in terms of cash flow, particularly in the early years. But over the long haul, a purchase of Office Space is usually cheaper because a landlord, in addition to paying all of the costs associated with purchasing and maintaining the property or Office Space, will attempt to build in a profit for himself. You can avoid paying this profit premium by buying, rather than renting, the property or office space.
  • You want to stay at the same location - for some businesses, such as certain retail and service businesses, location is all important. If you have established a winning business location, you don't want to lose it because of a rent escalation or because the landlord just wants the property for another use. If you own the facility, you won't have these worries.TOP
  • You haven't found a suitable property or Office Space to lease- you may want to lease Office Space, but have found all properties housing office space that would be suitable for your needs have been offered only for sale, rather than lease.
  • You are in an area of appreciating land values - if you will locate your Office Space in an area where you think land values will continue to increase, it would be better to own the property (and thereby get the benefit of this appreciation if you ever sell) rather than to rent it. This is would be particularly true if you are able to spot this real estate trend before prices jump up in recognition of it.
  • A purchase may bring you tax savings - although, unlike renting office space, the money you use to purchase your facility or Office Space is not deductible, you are allowed to recover this outlay over time by yearly depreciation deductions. If you financed your purchase of Office Space, interest-paid deductions are also available. Depending on several factors, such as how long your have been in business, how profitable your business has been, and what portion of the purchase price or rent relates to the land itself - rather than to buildings - a purchase may actually cut your tax bill when compared with a lease.TOP

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