Should You Rent or Buy Your Business Space?
November 2018
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Should You Rent or Buy Your Business Space?
Smart insights to inform your decision

Are you considering acquiring office space for your business? While some owners prefer renting and others prefer buying, only one option will suit the unique needs and objectives of your organization. Peruse the pros and cons of each investment to make an educated choice.

Advantages of renting

One of the main benefits of leasing an office space is that you’ll have more time and money to focus on your business, as The Balance Small Business contributor Darrell Zahorsky relates. With a rental, maintenance tasks are the responsibility of the landlord.

Another great reason to lease is to increase visibility in the community. If you have a restaurant or specialty boutique shop, or some other business that relies heavily on an accessible location, you’ll want office space in a popular neighborhood in town. Per Zahorsky, leasing will prove a more affordable way to reside in this prime location than purchasing.

An additional reason to rent is that it’s a more flexible commitment than buying. Owning your workspace will tie you down to a certain location and building for the long term, as Nerdwallet contributor Jackie Zimmermann shares. Leasing, on the other hand, offers the flexibility to relocate if/when necessary. 

Disadvantages of renting

Like with any major business decision, opting to rent has its drawbacks. A lack of equity is perhaps the most obvious disadvantage, as Zahorsky articulates. Each lease payment helps pad the landlord’s retirement fund, instead of going towards a mortgage so you can eventually pay off your office space.

Renting a commercial property also comes with its own variable expenses. If you choose to lease a workspace, be aware that you’ll likely have to pay annual rent increases, as Zahorsky advises. You might also have to pay a higher rent when it comes time to renew the lease.

Advantages of buying

Buying a permanent property for your business comes with its own set of perks. For one thing, it’s better for increasing your retirement savings. Per Zahorsky, purchased office space appreciates over time, which will enable you to resell it at a solid price when retirement hits.

Owning commercial space is also a good way to boost your income, as contributor Jagg Xaxx advises. Rent out unused rooms to other entrepreneurs during this time, to supplement your organization’s cash flow.  

Two additional benefits of buying a workspace are fixed costs and tax deductions, as Zahorsky shares. Property ownership comes with fixed payments each month, which will help your business establish a clear budget in this area. You can also claim tax deductions on your property taxes and mortgage interest.

Disadvantages of buying

There are a few downfalls to purchasing a business space. As Xaxx relates, commercial properties usually come with strict zoning regulations. For instance, if a property is zoned for office use, but not manufacturing, you won’t be able to rent out a portion of the space to a manufacturing enterprise. Owning commercial real estate also requires more upfront costs. Expect to shell out cash for appraisal, property and maintenance costs, along with a large down payment, as Zahorsky articulates.

Buying also results in less flexibility, should your business grow rapidly. Per Zahorsky, depending on how fast the growth rate, you might have to sell the property just a few years after purchasing it, to invest in a larger space.  

By considering the strengths and weaknesses of both renting and owning, you’re well on your way to securing the type of property best suited to your business.

Published by Heritage Bank of Nevada
Copyright © 2018 Heritage Bank of Nevada All rights reserved.
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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.
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