To buy or to rent?
This isn’t just a conundrum millions of individuals find themselves in. It’s a common issue among business owners as well.
When you’re starting a business, one thing is clear: you need to find a commercial space for it – unless it’s a home-based business. You have two options: you can rent or buy.
Which option should you choose? Although the answer might seem straightforward for most small business owners, renting an office shouldn’t be an easy decision to make. There are instances when it’s smarter to buy the space.
In this article, we’re fleshing out the pros and cons of renting and buying office space.
The Pros and Cons of Renting Commercial Real Estate
Renting an office is the most common option for most business owners. Why is this the case?
This is a no-brainer. It’s way more affordable to rent office space than buy it.
When you buy an office, it means you’re ready to pay for the space either in cash or through a commercial mortgage. Paying in cash is usually out of the question for most owners since small businesses are always running on a shoestring budget. Qualifying for a commercial mortgage isn’t easy either because lenders what businesses with established credit history and a proven revenue generation record.
With these options off the table, renting is the only choice left. On average, renting will cost anywhere from about $10 to $30 or more per square foot, depending on the location of the building. So, if you need a $2,000 ft/sq space, you’ll pay at least $20,000 a year in rent.
You don’t need to be good at math to know that it’s easier to afford $20K (about $1.6K a month) is way more affordable than buying.
Although it’s not a good idea to move your business from location to location, sometimes it’s necessary. If you think that your current location isn’t ideal for your business, for instance, it’s understandable if you want to move it to a new location with a bigger target market.
When you’re renting, it’s much easier to relocate. Although landlords will typically want you to enter into a lease agreement that describes when you can move out of the building, these leases are usually short-term (1 year). This is a short time, meaning even if your lease isn’t due to expire for another couple of months, you can wait it out.
Flexibility isn’t just about moving. If your business fails, you can simply fold up your operations without worrying too much about what will become of your commercial purchase.
Renting Can Be Costly in the Long-Term
When you think long-term, buying often turns out to be the cheaper option.
Here’s an illustration.
If you’re paying $20,000 a year on rent, in 10 years you will have paid at least $200K. In some locations, this can be enough to purchase a small office space and never worry about dealing with landlords again.
The cost of crazy high rent can also be a major disadvantage of renting. It’s an awful feeling when you find an ideal space only to find out that you cannot afford it. You have effectively been priced out.
You Have Little Control Over the Space
As a tenant, you don’t much control over the space you’re renting. Yes, you can paint the walls, install shelves, and make some adjustments to suit the needs of your business, but that’s just about it.
You have little control over how long your business will stay in the space. Imagine a situation where your business is really thriving and customers are loving your new location. But then your lease is expiring soon and the landlord has ruled out renewing it. Now you face the prospect of finding another location, a move that can affect your business negatively.
The Pros and Cons of Owning Your Commercial Office Space
Although owning commercial office space is less popular, it’s still a good option. In many cases, the cons of renting turn out to be the pros of buying, but there are unique ups and downsides.
Let’s have a look.
You Can Build a Custom Office Space
A unique advantage of owning a commercial space is you can customize it to suit your preferences. This is especially true when you’re building from scratch. By the way, did you know modern contractors use proposal building software that enables clients like you to have a clear picture of the costs?
If you don’t fancy building from scratch, you can still buy a space in a building and customize it accordingly. Although there are limits to the kind of structural adjustments you can make to the property, you still have greater leeway than if you were renting.
You Build Equity in the Property
The value of most real estate assets increases over time. Commercial office spaces are no different.
What this means is you have an opportunity to make money should you decide to sell it down the road. Or, if you bought it via a mortgage, an increase in equity means you can access things like an equity line of credit and use the asset as collateral.
You Have to Maintain Your Space
Ownership comes with maintenance costs. Unlike when you’re renting, repairs and routine maintenance costs are on you.
Bear in mind that you have a legal responsibility to maintain healthy and safe premises for your workers and customers, so you can’t slack on property maintenance and repairs when necessary.
There’s also the cost of depreciation, just in case the property doesn’t gain value as expected.
Renting an Office vs Buying: Make Your Choice
Renting an office might seem like the obvious choice when you’re starting a small business, but buying is also a possibility. With this guide, you now know the pros and cons of renting and buying, so you can make an informed decision.
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