I covered the advantages and disadvantages of renting compared to buying office space. What you choose will depend entirely on the type, size, capital, and objectives of your business.
Renting is the best option if you don’t want to have the headache of owning a property and prefer to have a greater cash flow than equity.
If you care more about equity and prefer to have more control over the spot, it would be better to buy an office space.
To make sure you don’t make the wrong decision, discuss with an accountant and financial planner first.
At the time of renting a place, make sure the lease agreement specifies everything clearly, especially the rules. If you are shopping, make sure the place has enough room for future business growth.
Also, don’t choose a location just because you like it. It is not a good enough reason. There are so many things you need to consider when choosing a good business position. So do your research before proceeding. If you want our help, click here
To Understand Read This
“Should you rent or buy office space? “always You will ask yourself this question “. Regardless of the type, size, and structure of your business. The answer depends mainly on the choice of the property.
If you found what you are looking to rent, you may have to settle for buying the place, or vice versa. As a business owner, you must carefully weigh the advantage and disadvantages of each option before finalizing your decision.
To help you make the best decision, I’ve put together a list of advantages and disadvantages for buying vs renting office space Check them out below.
Advantages of buying office space
Accumulation of equity capital
Commercial property, or any other related property, appreciates over time. This means that the value of the property increases over time.
You can use the commercial space that you own as collateral when applying for loans. You could even sell it and use the money to finance your business.
Depreciation of the building
Depreciation is a deduction of the annual income tax, which allows you to recover the costs incurred for the purchase of the property over time. You cannot expect to recover the full amount in a short period.
Monthly mortgage interest can be deducted from taxes as an expense. Even if you can’t deduct the full payment as you do with the rent, you can at least deduct the interest within the payment. For more information on this refer cleartax
You are the owner of your property. So there is no restriction for doing any kind of changes in the interior or any other, and no need to wait for some one’s approval. you may need to obtain a “building permit” from the Planning and Construction Services
department if you want to change any kind of structural. and if you don’t want your business to be legally vulnerable, you should be aware of licenses related to your business from authorities.
An additional source of income
You could rent extra space for a decent amount. It would increase cash flow and diversify sources of income. Nowadays co-working space is more trendy.
Disadvantages of buying office space
Huge financial Requirement
You have to pay a substantial down payment and after this manage the bank EMI. while the rent allows you to invest that money in growing your business.
Lack of Freedom
Compact working spaces carry the risk of being inadequate when your business starts to grow. So you have to sell the property, which alone is a time-consuming and cost-oriented activity.
After all this you have to pay real estate agents to convince them to put your property on their adverts and post online ads. You have to deal with a lot of paperwork.
Society / Property Maintenance and insurance
You will be responsible for all maintenance property insurance, Property Tax apart from this any other charges/tax implement by your local municipal authority.
Advantages of renting office
Less financial Need
Her no down payment. All you have to do is pay a refundable deposit, which is usually equal to three month’s rent. Some landlords may ask for a six-month rent as a deposit, but it is still cheaper than buying office space. Apart from this, you may be
required to pay a one-time brokerage fee if you have seen property through a real estate broker. For brokerage you can negotiate with a broker so possible you can save some money. you will also have to bear the costs of the Leasing agreement which is always 50-50 both parties.
The leasing option allows you to use the extra money which you can invest in your business to expand. Like for branding your product or hiring more qualified staff etc. it is always better to have more working capital for new startup companies or small businesses.
Access to the main Location
Small business owners can’t collect the kind of money needed to buy a commercial property in a high-end area. If a prestigious address and image are needed for the type of business you manage, Renting would be a better and cheaper option.
The rental allows you to access high-end properties in popular areas that would otherwise have been impossible to purchase with the capital you have. Even if you had the money, it would still be difficult to find one since most of the commercial properties in
well-known locations have already been purchased by real estate agencies with the hope of renting them at a high price in the future.
This brings us to an important but often overlooked point. Do not sign a rental agreement unless you specify who is responsible for what. The owner should be responsible for repairs and maintenance, not for you.
The central point of not buying your seat is avoiding the responsibilities that derive from it. Yes, even as a tenant you are responsible for keeping the place clean and unharmed, but the owner should agree to pay for repair and maintenance costs, as well as any improvements (within a budget).
For example, if the lift stops working, there is no point in paying for repairs since you don’t own them. Discuss these matters with the owner before signing the contract to avoid problems in the future.
When renting a commercial property, monthly rent payments are tax-deductible as business expenses.
Some owners may agree to pay for a certain utility such as waste management, but regardless, utilities are under your responsibility, so you can’t blame them if they don’t. Some may even agree to pay for security on the premises.
Easily relocate office
All companies grow as they receive more and more customers and employees. At some point, you would feel the need to look for a larger office space. When such a time comes, you would have only a few concerns in mind as the place is rented.
Disadvantages of renting office
Real Estate Broker Fees
If you discovered the place through a broker, you will be asked to pay a one-time fee or on renewal of the lease period. The commission is usually a one-two month rent. Brokerage or fees must be negotiated before signing the contract.
No accumulation of equity capital
You will have no equity in your premises and you would finance someone else’s pension with your monthly rent payments.
Every year Rental increases
IT will be yearly 5% or third year 15 % as standard market rules .some Landlords usually make annual rental increment or when the lease is renewed.
Always depend on someone else
Most commercial property owners are wealthy people. They may not have time to visit and immediately examine the problems you are facing. You should wait until they find the time to do it, but again, the quality of the repairs is entirely in their hands.
The owners may impose certain rules relating to the use of areas outside the premises which could affect the company’s ability to Park vehicles and store materials. Make sure to discuss these things in advance.
Personally, would you rather rent or buy office space? And why? Let me know in the comments section below. If you want our help, click here