Advantages and Disadvantages of Buying, Leasing and Subleasing Office Space
Starting a new business is a major step but deciding whether to buy, lease or sublease office space, is just as important a decision to make.
No matter what anyone tells you, you know your situation best and therefore have to work around meeting your particular needs. A lot depends on your financial situation, although new business owners prefer the option of leasing, rather than buying as it seems wise to concentrate first on establishing your business before involving avoidable additional expenses.
Undoubtedly, there are both advantages and disadvantages of buying, leasing and subleasing office space and it is a good idea to weigh both options before making a final decision.
Leasing a property offers you flexibility as you are less committed to the place and can easily move when necessary. You donâ€™t have to worry about the maintenance and security aspect of the property as the landlord is responsible for all issues related to the leased property. Furthermore, it also gives you access to better cash flow, which would otherwise be tied up in a mortgage loan, if you were buying property; the rent you pay for the office space is fixed, irrespective of inflation and also tax deductible as it becomes part of your operating expenses and therefore an added attraction. Needless to say, depending on the real estate situation, you might end up with a great deal and get a lower rate on your lease amount.
Another factor is that when you lease office space, you are required to pay a couple of months of rent in advance, which is a major advantage, especially when you are just starting out. However, were you to buy the place, you would be compelled to pay a down payment of approximately 25 percent and have years of mortgage payments to deal with.
On the flipside of course a lot depends on the type of business you are going to operate, which means leasing might at times not be the better option. When you buy premises it usually is a long-term investment. Buying does not give you that much flexibility, because at times you might need more space which would be hard to find in the same area and you definitely need to have enough cash flow to purchase the property, which might not be that easy.
When you lease a property, you are obligated to complete the monthly payments for the whole period, even if you decide to leave the property before the term end. This is definitely a disadvantage especially in cases where business owners face losses.
Leasing property does not allow you to increase your equity as you would if you were buying and you are still responsible for all the equipment as indicated in your agreement. If you buy the premises, you are responsible for all the repairs and maintenance, which can be a rather expensive affair.
However, another advantage of buying rather than leasing is that the monthly costs are fixed, no annual rent increases to deal with and sometimes you can sublease part of the office space and get extra income. Additionally, you are free to sell your bought office space as and when you desire.
It goes without saying that there are a lot of pros and cons to be taken into consideration before making a final decision, as to whether to buy, lease or sub-lease office space and the answer will vary for each business according to its need. For starters, the best thing would be to fully analyze and make an educated decision that would make your business grow and hopefully survive in the long run.
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