Benefits Of Leasing vs. Purchasing Office Space

Benefits of Leasing vs. Purchasing office space.  Economic uncertainty and market volatility are causing many of companies to question their commercial office space needs.   What’s the right decision for your business?  Should you lease office space or purchase office space?  The short answer is, well, it depends.  Not sure if leasing is right for you?  Comparing the benefits of leasing office space against your company’s commercial real estate needs can help.

Some of the benefits vs. purchasing office space include:

Increased Flexibility. Leasing office space provides flexibility that you lose when you purchase an office building or office condo.  You have the opportunity to expand as you grow and to sublease office space should you downsize.  By leasing, you also maintain the flexibility to move the business when the lease expires, without the headache of a building sale.

Smaller Initial Cash Outlay.  When leasing office space, depending on your market, credit standing, and negotiated terms, your initial cash outlay will generally consist only of first and last months’ rent.  Purchasing commercial real estate requires a down payment—often as high as 25 percent of the purchase price—as well as the expense of appraisals, building inspections, loan fees, and property improvements.  For example, an office building listed for sale at $4,400,000 is also listed for lease for $30,000 per month.  At 25 percent down this represents a $1,100,000 cash outlay, versus a $60,000 initial lease deposit – a difference of 95 percent.

Tax Benefits.  Because an office lease is a business expense, it is fully tax deductible.  This includes all financial obligations to your landlord.  So if your landlord passes through property taxes or janitorial fees, you can deduct the costs.  Office building owners can write off some costs as well, but generally over much longer periods of time.  For example, property improvements must be written off over a period of 39 years.   Office space renters also have less tax paperwork than owners.  Please note, tax laws are fluid and nuanced, so it is vital to consult with your attorney and tax professional to understand your unique obligations.

Less Dependence on Credit. While your credit can affect your office space rental, particularly the initial rent and security deposit, the effects are more severe when purchasing.  If you do not have good credit, you may fail to qualify for a loan, or if you do, high interest rates will put a strain on your monthly expenses.

Improved Location and building quality.  Leasing allows you the benefit of upgraded facilities and prime locations.  Real Estate 101 teaches us that all property should be put to its “highest and best use.” In layman’s terms, this means that areas of high demand will produce large projects capable of meeting the demand, putting the purchase of Class A office buildings and low-rise suburban office complexes beyond the size and price limits of most businesses.

Reduced responsibilities. Owning commercial office property means maintaining it.  This can include leasing vacant space, managing janitorial issues, property maintenance, and security, among other expenses.  Even if you hire a property management company to handle day-to-day operations (which can be expensive) this can still be a time consuming process.  Leasing simplifies your life and allows you to focus on your core business.

Opportunity Costs.  Money spent purchasing your office space is money that is not invested into your business.  This can be especially critical for newer businesses that need money to grow and invest in its people, business and infrastructure.

Tenant Representation: What It Is and Why You Need It

Commercial office tenants have a lot to think about when it comes time to secure a new lease on an office building or renew their current commercial office space lease with their landlord.  There is so much to consider that commercial office tenants sometimes become overwhelmed and due to such feelings may make mistakes in securing their commercial office space lease.  This is where tenant representation can help.  The following will highlight what tenant representation is and why you, as a commercial office tenant, need this on your side.

What Is Tenant Representation?

Tenant representation is when a tenant representation advisor helps commercial office space tenants with their commercial office space needs.  The tenant representation advisor will help the office space tenants find an office to lease, help them secure the office space lease and aid them in every step along the way when it comes to negotiating with the landlord and getting the office space needed.  They also help office space tenants with their lease renewal negotiations.  The tenant representation professional will discuss the various office space needs with the office space tenant and then narrow down the office space lease options in the area to the ones which meet the needs of the office space tenant.  Tenant representation advisors will also help the commercial office space tenant with the real estate documents and make sure that the office space tenant knows what they are leasing and getting the terms they deserve.

Why Do Commercial Office Tenants Require Tenant Representation?

There are quite a few reasons why commercial office tenants require tenant representation.  First, commercial leases can be a bit difficult to understand at times.  By having a tenant representation professional by your side, you will be able to rest easy knowing that your office space lease will be beneficial to you and be able to understand exactly what it contains within the document.  Secondly, those who are looking for commercial office space to rent may not know where to begin the search.  When you use the services of a tenant representation firm, you will get right to the best office space leasing possibilities and make it much easier to find the perfect office space to lease in a quick manner.

Also, tenant representation professionals will protect you from being overwhelmed by your future landlord or taken advantage of by your future landlord.  When the landlord of the office space you wish to lease sees that you have a tenant representation firm on your side, they will automatically know that you are a force to be reckoned with and everything should be on the up and up.  Finally, when you use a tenant representation advisor for all of your commercial office space lease dealings you will be able to have that peace of mind you deserve and be able to focus on other matters, such as carrying out your daily business dealings.

Tenant representation professionals provide commercial office space tenants with an easy way to get the lease they deserve quickly and efficiently.  These professionals know the commercial leasing business well and will help you in your future leasing dealings.

Chicago Office Space: The Benefits of Owning vs. Leasing

Most business owners will, at some point, realize the need to search for office space. Some have started their businesses in their homes and will be looking for office space for the first time. Others will need to search for office space due to growth or to find a more suitable location.

Whatever the reason, one of the first considerations will be whether it is better to purchase or lease office space. For some, the first thing that comes to mind is the upfront cost. Obviously, those costs will be greater if seeking to purchase rather than lease office space. Still, the benefits of owning vs. leasing office space can be attractive. In fact, for those business owners who have the capital to invest, owning is often a better decision.

Income Potential

Many business owners have realized that they can produce an income stream by owning office space. Consider purchasing an office building that is larger than the current needs of the business. After deciding how much of the space is needed for your own business, set up the rest of the space as offices that can be leased to other small business owners.  This allows small business owners to generate revenue in the form of rental income.  As the business grows, more of the space can be kept for its use and less of the space rented out. This allows the business room to grow without having to buy a larger office building.

Fixed Costs

When a business owner leases office space, there is no guarantee of what the costs will be once the current lease expires.  On the other hand, when a business owner purchases office space, the amount of the monthly mortgage will be set. That means that as the business grows, the profit can grow more easily as well. It maybe easier to determine long term budgetary needs as one of the major costs of doing business will be steady.

Tax Benefits

The tax benefits involved with a business owning office space should not be overlooked. Yes, there are some tax benefits when leasing, such as writing off the amount paid in rent, but there are greater benefits available to those business owners who own their office space.

Some such benefits include deducting mortgage interest, property taxes and depreciation. Also, if the building includes rental suites there may be a host of other tax deductions as well.

Of course, tax laws vary depending on location, type of business and other factors, so it would be wise to consult with an expert so it would be clear exactly what types of deductions to expect.

Equity Builder

Owning office space, allows the business owner to build equity in the business. This is valuable not only for the obvious reasons, but owning office space may also help grow the business in the future.

The greater the worth of the business, the better the chance that business has of securing funding for future growth. Having an office building in their portfolio, and the equity that comes with it, could potentially be the difference between a “yes” and a “no” when it comes to securing a business loan in the future.

The benefits of owning vs. leasing office space may make it a wise choice for many business owners. While the initial cost is much greater than leasing, the longer term may outweigh those costs.