At some point, every business has to consider whether they should buy or rent their office space. The decision can vary for different types of businesses. There are several points to consider when making this decision in order to maximize the bottom line.
Many of the considerations of whether to lease or purchase office space is the same for individuals looking for a home. For example, initial cash outlays are much different for each option. Renting something only requires a relative small upfront outlay while purchasing can require a large down payment and other associated closing costs.
However, leases are more subject to the whims of the market when your lease term ends. Especially with a fixed-rate loan, costs are more predictable from year to year when you own the building.
It’s important to consider future growth and the need for new space. Purchasing a building that meets your needs now can be advantageous if you’re able to lease the space when you move.
But, it also means you’re in a second business, real estate investing. And it is entirely possible that can become a bigger hassle and financial drain than simply leasing.
Of course, taxes are a big consideration as businesses can deduct the entire amount they pay in rent while owners have some limitations. It may be better to create a separate Limited Liability Company and then rent the space to your company, according to Joseph Anthony, a Portland, Oregon tax professional.
So, should your small business buy or rent office space? Depends on your circumstances and if you are able to manage the property in addition to running and growing your business. Consult with your tax accountant and attorney to best determine the implications of owning vs. renting.
