Canada's Condominium Magazine
Although office spaces are typically leased, a growing number of professionals are beginning to question whether they should rent or buy. After all, these spaces are generally intended to be a long-term investment, whereas renting is only beneficial when fulfilling short-term needs.
If you are only going to occupy a space for a few months or years, then renting can be a great option. However, if you plan to be there for the long haul, then you may be better off buying the property. Buying gives you something tangible. If you rent, you could end up spending the same amount of money and end up with nothing to show for it.
This has prompted many entrepreneurs to consider purchasing their office space. Buying provides many benefits that make it a worthwhile investment. Some of these include the following:
- Ownership provides added security and stability, whereas renters are often faced with the need to move once a lease is up because the landlord needs the property back or has received a better offer elsewhere.
- Space requirements for renters also fluctuate over time, leaving businesses struggling to make necessary changes. This is not the case for professionals who own their property.
- The owner can write off the interest of the mortgage against their business income.
- The business itself becomes more. If the owner later chooses to sell the business, he or she is not simply selling the business plan and cashflow but also the real estate that comes with it.
- A business that includes its own real estate is also a more tangible asset which can more easily be handed down to an heir, signed over to a new owner upon resale, or left behind in a will.
Many prefer to rent because they feel that it gives them more flexibility. They can downsize or upgrade their business and office space whenever they choose. However, this is also the case for buyers. Additional adjacent spaces can be purchased and converted into a single, larger unit through the installation of new doors, knocking out walls, etc. Likewise, these spaces can be sold or rented out to other professionals whenever needed, and the space itself can be sold in order to purchase a more suitable office.
A number of factors should be considered prior to making the decision whether to lease or buy commercial real estate. Chief among these are the initial investment, property maintenance, and increased liability.
Can the business afford to tie up a large sum of money in this way? It will require a large investment that may or may not prove worthwhile in the long run. Additionally, property owners find themselves with greater liability issues, as they are responsible for the health and safety of everyone inside the unit. This includes employees, vendors, visitors, clients, and anyone else who enters the unit, no matter how briefly.
If a portion of your space is eventually sold, then liability for the sold space passes on to the buyer. However, if you rent the space out, then you continue to assume responsibility as property manager. This will require additional insurance policies and continued property maintenance.
Will you be able to handle property maintenance on top of running a business? Newer properties are not as much of an issue, as maintenance and repairs will likely come later down the road. However, older properties provide much more risk and can require costly and time-consuming repairs and upgrades.
If the business can handle such investments, then it may be beneficial to make the plunge and purchase the property rather than signing a lease. Although it can be a risky investment, it generally has a huge payout in the form of asset appreciation. Over time, the property will increase in value, especially as improvements are made and the business as a whole becomes more valuable.
Regardless of the option chosen, a solid business plan will need to be in place. If you are considering purchasing your office space versus leasing it, then weigh the pros and cons of each decision and determine which option is more feasible and provides more benefits with less risks. Furthermore, you should consider whether you plan to invest a large sum of money in upgrades and improvements to your office space in order to meet the needs of your business. If this is the case, then purchasing the property will be a wiser decision, as it allows you the flexibility to make any and all desired changes, though adherence to zoning laws and regulations is essential for safety and liability purposes.