Benefits and Negatives of Buying an Office Building vs. Leasing?

Location may be one of the most important factors when starting or opening up another site. Followed by leasing options or, if there is a building for sale in the area, buying the office building entirely. Here are the benefits and negatives of buying versus leasing an office building.

Benefits of Leasing

If your business needs to be located strategically in a specific area to generate income, then location is crucial. Since you have a higher potential for growth where you are at, allowing you to be in closer proximity to your suppliers and continue to be accessible to your employees. Then logistically speaking, you need to stay put, and leasing the office building for your business can be the wise choice at this time.  

 From a financial standpoint, you will not have to let go of a substantial amount of money. If your business is relatively new, then it will allow you to manage your working capital while your business is still growing and eventually save up to own your building. 

Lease buildings essentially already have everything that you need.  Since most office leases are also Full Service Gross, the landlord will be in charge of repairs, maintaining the elevator, even replacing a broken toilet. Most office buildings will have short term leases of 1-3 years, while others will encourage you to lease with them for 5 - 15 years, allowing you more time to focus on your business.

Benefits of Buying 

The benefits of buying an office building are that everything is finally yours. Owning property builds your equity, which can be beneficial to your business once you decide to expand --your equity can be used as a form of collateral, which increases your chances of qualifying for business loans.   Typically speaking owner a property may initially have higher costs, but your rent will never increase, and after tax benefits, the cost of owning is typically lower than renting. You will also be entitled to tax benefits and deductions. Since you will no longer need to pay for rent, you will have more money for business or personal needs.   Lastly, you will be able to take advantage of the appreciation of the building in the long run, building even more equity.  And if you are a nonprofit organization, then you might not be subject to pay property taxes.    

Negatives to Leasing

While some buildings may appear to have better value based on the total footage area, if you choose to lease an office building, keep in mind that there are two areas, the usable and the rentable. As indicated in the lease agreement, tenants are required to contribute to the costs of maintaining the shared spaces. Those include the lobbies, pool areas, hallways, stairways, and property management offices inside the building. These are also referred to as common area factors of add-on factors. They can be negotiated before signing the lease agreements, so it is essential to discuss these beforehand. If not, then you will be obliged to pay the 10-15% increases.   Also, keep in mind that the landlord purchased the building as an investment, to make money, you typically pay rent that will be higher than the mortgage and expenses of owning…

 Negatives to Buying

Owning the office building has a few negative drawbacks too. Since you now own everything, you will also need to be responsible for everything. After buying the office building, there may be additional construction and renovation costs. You will need to manage the building, pay property taxes and insurance.  There is also a higher up-front cost to owning (think down payment), which may tie up working capital. Then there are the risks that after several years, your business may have better opportunities elsewhere.

For more information, you may reach us at:  info@cbi-commercial.com.