The Buy or Lease Office Space Question

Many businesses reach a point in which they are curious as to whether it would be beneficial for them to purchase office space rather than continue to lease office space. While every business is different there are a few common factors that should be taken into consideration when evaluating whether buying office space would be better that continuing to lease office space. We will take a look at some of the pros and cons to purchasing compared to continuing to lease office space.

• Cash Outlay - Typically if you are planning to purchase an office, you can expect to make a down payment of between 10% and 25% of the purchase price, depending on the lender and your credit. When you lease office space you won’t need to put down nearly as much. With good credit, the typical outlay is the first and last months rent which is only about 10% to 15% of the cash outlay required when purchasing office space.

• Opportunity Cost – With the large outlay of cash required to purchase office space, the opportunity cost of that money needs to be taken into consideration. What return would you expect to receive on that money compared to the return you would expect to receive if you invested the money back into your business or into other investments?

• Fixed vs. Variable Cost – When you buy office space, you have a good idea what your costs will be over the long term. This is especially true if you have a long term fixed rate mortgage. If you lease office space, the market will dictate what you will end up paying for rent over the long run.

• Growth Considerations – The growth phase of your business should be a major consideration in making the lease vs. buy decision. If your company is relatively new and/or in a high growth mode, leasing would allow more flexibility and fewer constraints to that growth. On the other hand, if your company is mature and stable, buying office space is great way to meet your future office space needs.