For many entrepreneurs and small business owners, the question of whether to buy property or to lease office space can be a confusing issue. If you ask a professional real estate broker, he or she will probably tell you that it depends on the particular situation. The truth is, when it comes to this important business decision, there really is no “one size fits all” solution.
Of course, if you are lacking sufficient capital to purchase a commercial building, then the decision becomes an easy one. But leasing may be the smartest move anyway: Statistics show that most new business owners start out by leasing office space, and many business consultants advise leasing your work space until you get on your feet and your business starts operating in the black.
Some advantages to leasing your business property:
- Flexibility. One obvious advantage to leasing property is the flexibility it provides. When the lease is up, you can easily relocate to another office that better suits the needs of your business and your budget.
- Fewer responsibilities. The property manager or landlord is the one responsible for maintenance, security, remodeling, and other management issues.
- Deductible payments. If the arrangement is a true lease (and the Internal Revenue Service agrees it is), then lease payments are deductible as operating expenses.
- No mortgage. Not being locked into a mortgage loan allows you to free up cash and put it where it is needed. This is especially helpful for new business owners.
- Tax credits. An investment tax credit is a dollar-for-dollar reduction in federal income taxes, equal to 10 percent of the cost of the equipment in the year the equipment is put into use. While the lessor usually takes the tax credit, it may pass part of the benefit on to the lessee in the form of a reduced lease payment.
- Negotiable rates. If real estate properties in your area are plentiful, it may be possible to negotiate a lower price on your lease amount.
- Less tax paperwork. If your business is leasing office space, your income tax return will be simpler to file, compared to the endless forms that building owners must fill out.
- No down payment. When you purchase a building, you typically pay 20 to 25 percent of the price as a down payment and then mortgage the balance. When you lease office space, you need only pay one or two months of the lease value before moving in, which can be a real blessing for cash-strapped small business owners.