Buying Vs. Renting Office Space
Category News
Consider these advantages of purchasing office space that is for sale:
- Purchasing property in a decent area, and keeping it well-maintained, could eventually translate into an extra source of income. The value of your property will increase as market rentals increase, and you could ultimately sell the property at a sizeable profit. Just make sure it actually is a good area, and you’ll be fine.
- Another great thing about purchasing a property is that it increases in value. As it does so, you could rent it out at a profit. This is especially great news if you start getting bored with the space, or just need something new or different. This way, you solve the immediate problem, but also have a possible source of income for the future. If all else fails, you could sell the property and put the profits towards investing in a brand new property. Or your e-Tolls bills.
- Owning a property means that you will be the solely responsible for maintaining it. You will, however, also have the amazing luxury of being able to make changes when or if you need/want to. You’d be able to turn the corner office into the Red Room from 50 Shades of Grey for example. And No one would care.
- Although a mortgage loan always seems like huge commitment, it is worth it. The capital portion of the loan will reduce your debt as you pay off the total amount you owe on the property. At the same time, the interest you will earn on the loan will be tax deductible (winning!).
- At the end of your loan period, you will have a paid-off asset. A fully-paid commercial property will significantly improve the state of your balance sheet, and the size of your office parties.
- Financing a property through a bond means you will also have more clarity and predictability on your fixed costs. An expected 1% increase in interest rates over a 12 month period is more favourable than the average annual rental increase of 8%.
But what about the advantages of office space to rent?
- Renting is often the better option if you are looking at a property in a prime location. This will usually be the significantly cheaper option compared to buying. Unless you plan on squatting in which case, it’s totally free.
- By renting an office space, you put yourself under less obligation and constraints. This may be an advantage for companies who are still rapidly growing and may need to change their office space sooner than expected, unless you keep firing staff when you get too full.
- When it comes to the bond repayment on a rental property, an entire rental can generally be listed as a tax deductible expense. The actual capital portion of a bond repayment, however, is not tax deductible.
- Generally speaking, renting will cost you less money monthly than purchasing will. This will also mean that you'll have a larger amount of working capital free and readily available to use on other priorities, such as soda fountains and putting mats for the office.
So what are the disadvantages of both of these, you ask?
- Purchasing an office space requires a huge amount of money upfront. You could also possibly make a loss on this investment if you are forced to sell earlier than planned, particularly if you’ve run your business out of business.
- If the interest rate increases your cash flow will decrease on a property you have purchased.
- Maintaining an office space that you have purchased will mean taking time and money away from your actual business.
- When it comes to renting office space, the moving and settling in could cost between 2-3 months’ rent! This could be considered wasteful if you had a property you could have put that down as a deposit on.
- When renting, you aren’t building your own equity or investment portfolio up. Instead, you are purely paying off the owners bond, and funding his holidays in Hermanus.
Whether you decide that buying or renting office space is the right option for you, there are pros and cons either way. Consider your options carefully, and make the decision that best suits your business, budget and growth potential.
Author: Quirk
