It's the big question for many who run a small business from an office space - Do I lease a space, or when the time is right, take the plunge and buy an office? At the end of the day both can work. It's all about your personal circumstances and where your business is at.
According to real estate experts, the decision to lease or buy should be carefully considered. If you come across an office space that you immediately feel emotionally connected to, don't rush into it - it may not be right for you.
Buying with your Super
Jason Beveridge, the Director of Raine & Horne Commercial Victoria, told Commercial Property Guide that the decision to either lease or buy is really a matter of what works best for you. There are lots of things to consider.
"It is about assessing your long term requirements and how long the premises and location will meet your needs. If you own, your view on whether you intend to hold the property as an investment once you move on has also to be taken into account."
"A lot of people are buying with their superannuation, then renting it back on a healthy return."
According to Mr Beveridge, there are advantages to not buying and just leasing an office. "Leasing an office gives you flexibility to move on as you grow with limited expense."
"If there is a retail aspect to your business, being a tenant may reduce your outgoings. Whereas buying an office gives you the ability to make changes internally and externally as you like. Another advantage is that purchase repayment costs could be less than the monthly rent."
Rent Frees up Capital
Nick Draffin, Managing Director of Appleby Estate Agents, believes it's all about personal circumstances when it comes to leasing or buying an office.
"Renting frees up capital for other business asset purchases, and give your more flexibility to move location," he said.
"While buying you can pay yourself rent, and have security of tenure."
Seven Year Tipping Point for Buy/Lease Decision
Karina Fabian from the website www.business.com, shares the same view as Mr Beveridge and Mr Draffin that there are advantages for both leasing and buying an office.
“Financial studies have shown that, in the short-term, leasing is more cost-effective than buying,” she wrote.
“However, if you are considering a property where you can make your headquarters for a decade or more, then buying becomes more financially attractive. One analysis indicated that seven years seems to be the tipping point, but each case differs.”
“If your business is booming and you anticipate rapid growth in the next few years, then leasing gives you greater flexibility to move if you outgrow your current facilities,” Ms Fabian wrote.
“If you purchase, you may outgrow the building with the associated expenses. These expenses also apply if you think your business may downsize in the next few years.”
In summary Commercial Property Guide outlines the advantages and disadvantages for leasing or purchasing an office:
Commercial Property Guide Check-List
- Low up front capital
- Lease time frame offers options in terms of length that may suit your business needs and growth
- Better short and long term flexibility
- Some service and building issues are paid for and managed by the owner
- Minimal property expertise required to enter into a lease
- Building ownership can change
- Potential to miss a lease extension or option causing you to have to move premises
- High exposure to market fluctuations relating to rents
- Dependency on third party property management and service provides for service issues
- Properties are an asset and attract a property value appreciation
- At some stage through the purchase cycle, ownership becomes less expensive year on year
- Tax benefits (where available)
- Control of quality of property management and suppliers
- High upfront capital required
- High time investment on non-core business
- Ownership of your property should be separate to the core of your business and requires a bundle of time, real estate expertise and resources to set up and maintain
- Less flexibility
- Potential loss in asset valuation
- Exposure to economic/interest rate fluctuation
As with all financial matters to do with your business, seek advice from your finance team or business accountant whether buying a commercial property is perfect for you.