When you think about starting a business, the availability of office space often appears as a major problem. Entrepreneurs are in a quandary regarding whether they should rent or buy an office space.
Your decision to lease or buy an office space will be governed by the following factors:
Availability of cash
For business start-ups, it often costs less to lease a property compared to buying it. Therefore, with limited cash in your hand, renting an office space seems advantageous.
An advantage of buying an office space is that you can easily project the future costs of owning the property. The only variable cost, involved in buying a building, arises from floating interest rates on loan repayment. However, this problem can be tackled, by going for a fixed interest rate loan.
Renting an office space on the other hand, involve several uncertainties. If your property owner refuses to renew the lease after it expires, you will face unfathomable problems. According to the clauses of your lease, your annual rent might be linked to some market index. Rise in the market index, such as consumer price index, will push up your annual rent.
Rising real estate cost
If you own a property, you can take the advantage of rising cost of real estate in the future. If for some reason your business runs at a loss in the future, you can sell your property to recover a part of your business cost. You can also rent a portion of your property, and the appreciating rent can be a viable source of your income.
When you start a business, the size of your business seems adequate to be housed in the building leased or owned. However, with growth in your business, you will need more space to accommodate your growing business. If you leased an office space at the inception of the business, you can move your business to a new bigger space.
However, this flexibility is often not available to an entrepreneur owning an office space. If your business is new with lots of growth potential, you could lease an office space. If you have a stable business, buying an office space is beneficial.