As all small businesses grow they are eventually faced with the decision of whether they should continue to lease their space or buy an office condo. This is not an easy decision as there are many pros and cons for both sides of the argument. Especially with the current economic conditions, the only thing you can be sure about moving forward is that market conditions will continue to change. Synergy Real Estate Group can use their expertise and experience to guide you when making a decision regarding buying or leasing office space, but here are a few things to consider before you get started.
Buying the office space that you occupy brings with it some advantages. First off, by locking in your commercial mortgage, your real estate costs become fixed and you don’t have to worry about the economic uncertainty of rental rates rising and falling. The owner of a building is also often afforded tax deductions in the form of mortgage interest and property taxes that renters do not get to take advantage of. As you pay your mortgage, over time your property will build up equity, allowing you to sell when you retire, essentially using your building as a retirement fund. If you buy an office condo and discover its just too much space for your business, you can also sublet the additional space and add another source of revenue.
Buying office space isn’t all positive however and does have a couple drawbacks. Buying a space carries many more upfront costs, including a large down payment, closing costs, and property, appraisal, and maintenance costs. Also as many people can relate from their own experience with their personal residence, buying space provides much less flexibility than renting and cannot account for unexpected future needs. If your business continues thriving, you may outgrow your purchased location and be forced to sell and buy a new one. Coupled with the high initial costs of buying a new piece of real estate, this could slow the growth that caused your business to need more space in the first place.
A business also has the choice to rent or lease its space rather than purchase. The main benefit of leasing is that you don’t have to spend your time handling the details of the property and can focus on running and growing your business. Along with freeing up your time, leasing frees up capital that would have been locked up in your location if you had chosen to buy. This capital can instead be used to help grow the business. Not having a large mortgage obligation can also make it easier to obtain more capital through loans. Another less obvious benefit of leasing is that there will be more locations available to choose from and as such your business probably will be able to find a nicer location for the better rate. This benefit is more important for businesses that rely on visibility such as retail and medical offices.
The cons of leasing space go hand in hand with the benefits of not leasing, or buying office space. By not signing a long term mortgage and locking in your rate, you make your business susceptible to changing market conditions and possible increased rental rates. As a renter, you will not be able to build any equity in your space, and instead of your monthly payments building a retirement account for yourself, they will benefit someone else.
The lease or buy question does not have a clear cut answer and the debate will continue. However, each individual needs to come to a decision based on their unique situation, weighing the pros and cons of each alternative. Synergy represents businesses both looking to lease and purchase space and we will be happy to discuss your commercial real estate needs and whether an office condo is right for you. Please contact us at858.633.0480 or visit our website at Sandiegoofficespace.org/san-diego-office-condos-for-sale/