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Starting a business

Small Business Advantages and Disadvantages of Leasing Vs. Buying Office Space

The cost of office space is a major expense for any business, especially for a small business with limited financial resources. Consider the advantages and disadvantages of leasing vs. buying office space, relative to your particular small business and financial situation.

Advantages and Disadvantages of Leasing

Leasing office space is a popular option for small business owners who lack the capital for the necessary down payment required to purchase office space. In fact, one of the major advantages of leasing over buying is that it doesn't require a major expenditure up front. Capital that isn’t spent on office space can instead be devoted to growing your small business, either through hiring additional employees, or in advertising and marketing.

Leasing may also be your best choice if you haven’t yet found the ideal location for your business and may wish to relocate within a year or two. Leasing may enable you to secure office space in a more upscale area of the city - space that is prohibitively expensive to buy but affordable on a leasing basis.

When you lease a property, the landlord is usually responsible for maintenance and repairs. This can represent a substantial savings if the property requires a major repair expenditure, such as replacing a water heater, plumbing or electrical system.

The primary disadvantage of leasing is that you won’t be building up any equity in the office space property. Also, the rent is likely to increase by an unspecified amount with lease renewals, which makes budgeting business expenses more difficult.

Advantages and Disadvantages of Buying

A major advantage of buying office space is that you build equity in the property. You can use that equity as collateral for financing the expansion of your business.

Mortgage payments, unlike rental rates, remain stable. This makes budgeting easier and also protects against major increases in property values, which typically increase rental rates significantly.

Buying office space also enables you to rent out any part of the building that you don’t need, bringing in extra income for your business.

Owning the property means that it can be depreciated, thus reducing tax liability.

The main disadvantage of buying is the major expense of an upfront down payment. If you decide to relocate your business, selling the property may present problems in a down real estate market.

Making Office Space Expenses More Cost-Effective

There are several steps you can take to keep the office space expenses for your small business at a minimum and make office space expenditures more cost-efficient. If you own a retail store, expand your business online; this doesn’t require securing additional space. Your small business may be able to reduce its required office space by using telecommuters. There’s also the possibility of sharing office space expenses with another business that requires the same type of office space that your own business does, allowing both businesses to save money on office space and opening up possibilities for collaboration.

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