Starting a Business: Should You Lease or Purchase Office Space?

When launching a new business, one of the first choices you’re faced with is where you’ll have your offices. We’ve all heard stories about garage- or basement-based startups, but sooner or later, every company needs some dedicated space for its employees.

Choosing the right city, community, or neighborhood is a big decision in and of itself—but in addition, startups face the question of whether it’s best to rent or buy. Ultimately, there’s no one right answer here. It actually depends on a few different factors.

At Kuester CRE, one of our passions is helping local businesses find the best space to grow and to thrive. Here are a few considerations we’d recommend for anyone wondering whether leasing or purchasing makes the most sense.

Down Payments and Deposits

When you actually purchase office space, you typically need to make a down payment—and that can cost up to 25 percent of the total real estate price. As such, this option is only realistic for companies that already have decent financial resources. With a lease, meanwhile, you’ll probably only need to make a deposit (usually one month’s rent)—a much smaller sum, and one that’s likely refundable.

So does that mean leasing is always better? Not necessarily. Purchasing office space is ultimately a long-term move—and if you have the resources and feel confident your business can prosper for a good many years, that down payment may be the way to go. Otherwise, consider leasing.

Remaining Flexible

Here’s another way to come at the issue. When you’re leasing your office space, you have the freedom to renegotiate the terms on an annual basis—or to seek new office space as your company grows. That flexibility can come in handy; when you buy office space, meanwhile, you’re much more locked into it.  Also, if your company is just starting up, you have new options such as co-working spaces or executive suites, which can be very effective because the lease terms are minimal (usually one year or less).

The flipside of the coin is that, by purchasing an office space, you’re building equity in it. The office space itself becomes a valuable asset for your business—and you can even use it as collateral if you need to expand in the future.

Becoming a Landlord

One final consideration: When you lease office space, you have a landlord you can call to help deal with maintenance issues and repairs—and that can be comforting!

On the other hand, when you purchase your own property, that means you’re the landlord, and have to handle maintenance issues on your own. With that said, it also means you can rent out part of your office space to other companies and supplement your income.

It’s one of several trade-offs to consider as you think about renting or buying your first office space. Again, there’s not a right answer here. It all comes down to the state of your finances, and the type of flexibility you need to grow and scale your business.

One way you can make a truly informed decision is to consult with an experienced real estate broker. At Kuester CRE, we’ve spent decades building a reputation of knowledge and integrity, and we’d love to help you make a wise decision about the future of your business. Reach out to us today to set up a time to talk. Call our toll-free number: 855-723-2500.

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