What Are The Pros and Cons of Leasing vs. Owning Your Office Space?

Is your real estate strategy adding value to your bottom line? Whether you lease or own your office, when you look at the next one, two, five, or ten years, there are many ways real estate can impact your revenues or expenses in the short and long term. The outcome of having a strategy? You know what you want to happen, and what steps you’re going to take to capture that value.


If your strategy is not providing this insight for you today, don’t worry – let’s navigate a few solutions together. And, our favorite part, let’s figure out the most valuable path for you today.


Let’s Unpack Your Leasing Strategy First.


Pros

1. Predictable monthly and annual costs

2. Control of variable costs – utilities, common area, taxes, insurance

3. Not responsible for repairs and maintenance of the whole property

4. Flexibility to relocate in the market at the end of a lease

5. Liability limited to lease terms with the owner of the property

6. Ability to leverage market conditions against property owners


When leasing an office, we know this: You will have a fixed base rent and, depending on the type of lease, control of your variable’s costs – utilities, common areas, etc. These are the knowns of any property. Your exposure to larger issues, however, is limited. There is a clear line around your space and focusing on your recurring expenses can help save you money year over year. This is an opportunity to leverage against your current landlord – or a new one should you choose to relocate at the end of your lease.


But it’s not all in your favor.


Cons

1. No equity or appreciation from the asset

2. Duration of lease or early termination

3. Market conditions

4. Relocation costs


May the market forever be in your favor. If it’s not, you may discover the end of your lease means the relocation of your business due to new development, increased costs, tax assessments, or any of the other factors that come into play. Also, a five-year lease can feel like forever when you realize you need to change in year three. The cost of terminating or carrying these costs can deplete your business’s cash reserves in no time.



So, You’re Thinking About Owning Now?


Pros

1. Known fixed costs

2. Tax incentives & benefits

3. Additional income/subleasing

4. Equity/appreciation

5. Control overbuilding operation, amenities, improvements, and rules

6. No lease end date, long term “home”


When buying an office, we know this: Your asset can be leveraged, paid off, and create a payout for the property owner. Depending on your city, county, or state there is also an opportunity to leverage tax incentives for capital improvements, as well as end-of-the-year tax benefits. To top that off, if you have other tenants, you can also spread operating costs across the leases. There are many strategies for creating cash flow. Knowing how to reduce expenses creates more opportunities for maximizing value at a sale. This is only scratching the surface to ownership.

But again – it’s not all in your favor.


Cons

1. Down payment, high up-front cost, appraisal, build cost, needed improvements, etc.

2. Company money tied up in real estate

3. Property maintenance, insurance, ongoing building improvements

4. Lack of flexibility


Understanding what you need in ten years from your real estate is as important today as it is in ten years. Knowing you want the sale of an asset to increase the sale of your business may lead you to invest in a property of your own – stressing your cash short-term but capturing it all back in the future. Knowing you need to grow your product, sales, or staff in the immediate future may lead you to commit to a lease – limiting your exposure while business growth is imminent.



Both are great options. They’re both valuable strategies. They’re both commitments to the short term and long term. Knowing what you want now, however, is going to tell you which path to choose.


Need to know where to start? We’d suggest you get in touch with the SHYFT team to help you with your strategic planning. We partner with you and other industry experts to cultivate the best real estate options that meet your business goal.

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