Buying and leasing office space offer different advantages - bizjournals:

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Buying a property represents amuch longer-termk financial commitment than leasing and, as such, requires a realistic assessment by the potential purchaserd of the company’s future prospects. Companiews anticipating significant growth need to decide whether to purchase property that is largee enough to accommodate growth and whethe r they can lease unused space until it’s needed. The potential rental income that leasin unused space could generate shoulf be takeninto consideration.
Space is less of an issue when leasinfg anoffice since, if it becomes too smalpl the company has the option of not renewing its That flexibility also can be usefuo if market changes show that a move to a differeny location would be advantageous. On the other hand, renters can be facedx with unwelcome disruption should the landlord decide to terminate the Purchasing requires more cash up fron tthan leasing. The initial outlay when purchasing includes a substantiap down payment as well as the cost of inspectionwand appraisals, loan-related fees and other closing The upside is that, in contrast with a firm that leases the purchaser will own an asset that can be sold hopefully at a profit.
Accordinbg to online office space referral and informationb networkOfficeFinder LLC, businesx owners purchasing office space can expect to make a down paymenft between 10 percent and 25 percent of the purchasre price. By comparison, the up front cost involved in leasing a spacew usually is limited to just acouplee months’ rent. Another factor potential buyers shoul consider is the effect of the down paymentr on working capital available to financethe company’sx growth.
A number of other issues shoulc factor into the buying or leasing suchas taxes, maintenance costs and potential interest and rental rate Renters, for example, usually don’t have to worry abouf regular maintenance costs, which are normally the responsibility of the properth owner. However, should they wish to make significant alterations to theleased space, they can do so only with the landlord’w consent. Property owners, on the othefr hand, are free to make whatever changes they Purchasers also have the advantagde of knowing in advance what their futurer monthly loan paymentswill be, especially when they have a fixed-ratr loan.
Tenants, on the othert hand, are likely to face regular increases in rental ratees and need tobudget accordingly. Leasing initiallhy may look like thecheapetr option, said Tim Hatlestad, president of the Certifiee Commercial Investment Member but to help reach a decision, business owners shouldd carry out an after-tax analysis to determins what can be written off, as renting and buyingt offer different benefits. “Icf everything else were equal, then you have to look at the optionssafter taxes,” Hatlestad said. “The after-tax through a number of measures, will tell you what costse less.
” Property owners, for example, are eligiblde for deductions ofproperty taxes, mortgage interes and depreciation, while those who lease officse space usually can deduct the full amount of the rent as a business expense. Jim Osgood, CEO of OfficeFinder, said the stagde a business is in can be an important factor in determining whether to buyor lease. A more established busines s should consider buyingoffice space, he said, sinced anticipated growth is easier to predict accurately. A startup, on the othe r hand, would probably be better to leasean office, as it wouldr provide greater flexibility and fewer constraintsd to growth.
“I don’t know if it’s a good idea for a startuop to purchase real estate because there’s a lot of uncertainty aboutf whether the business will be truly successfukl or not,” Osgood said. Osgood said businesd owners should look at three possiblewscenarios — optimistic, realistic and pessimistic that pit anticipated property appreciation against cost factors to help them reach a decision.