Today, entrepreneurs and small-to-medium firms are inevitably faced with a difficult choice regarding their future operating space, namely whether purchasing it would constitute a better alternative to renting. If the purchase is your very first investment of this scale and you currently conduct business from a leased office space, then you’re probably nervous about a decision of this magnitude. To make matters worse, there really is no clean-cut guide to follow for determining the ideal option. The good news however, is that we can help you reach a conclusion by presenting the critical factors involved.
Consider the full extent of the financial implications involved
The upfront payment for an office building, irrespective of its position, utilities and dimensions, is in no way negligible. In the event that you can afford the expense from your current income, you don’t have a lot to worry about. On the other hand, if the income and profits can’t cover the entire sum, then you’ll have to apply for a loan and take into account the interest rates associated with it as well. How much of an impact would that have on your operations and budget?
Another way to look at the problem implies reflecting about other means to spend the cash that you’d invest in acquiring the space. To put it simply, if you didn’t purchase that space, what would your first options of reinvesting them be? Hiring a professional accountant to keep track of your transactions? Organizing a marketing campaign to raise brand awareness and promote your company in various mediums? Re-investing them in DJIA which seem to be doing fairly well lately?
And finally, remember the tax incentives stemming from purchasing commercial property, such as writing off the repairs and improvements to offset depreciation. Would these benefits be enough to justify the investment in your case?
Do you prefer to rely on your landlord?
It may all boil down to whether you prefer the landlord to provide assistance whenever you’re experiencing technical difficulties with the space, such as busted pipes, broken HVAC system, etc., or you’d rather get involved and fix them yourself. On a side note here, you may be able to negotiate a better rate with the contractors you hire than the fees you’d pay the landlord for the repairs. Over time, the price difference between the leasing premium and the infrequent repairs could be substantial, but it all depends on your negotiating skills and ability to find a reliable service.
Do your plans for the foreseeable future involve expanding or downsizing the business?
It’s not unusual for small and medium enterprises to see capital fluctuations that enforce decisions regarding personnel size and the inherent space requirement. For instance, when you hit a rough patch, it might be necessary to lay off a significant portion of the staff to keep the company afloat. Conversely, when the profits margin is favorable and increasing at a rapid rate, you’ll find that it’s mandatory to hire more people to deal with the public demand. Essentially, unless your plans are focused primarily on consistency, renting is the only option to guarantee you have flexibility.
Do you intend to relocate anytime soon?
In certain cases, the necessity to move to a different location in order to take advantage of better business opportunities arises. However, if you’re current positioning is excellent from every possible perspective, there’s no reason to mess with success. In other words, try to establish whether the office building you intend to acquire is suitable as headquarters in the long run. If it’s not, then just rent it.
Do you like the idea of being a landlord?
Quite frequently, office buildings are shared between different companies that operate on the premises. This means that purchasing them effectively makes you the landlord, and you assume all responsibilities and benefits that come with that title. This won’t be an issue if you just buy a floor in the building, but proprietors are generally reluctant to selling only a section of their structure, and you’ll be faced with an ‘all or nothing’ stance. Essentially, if you’re feeling a bit unprepared to become a landlord, then you might want to reconsider the acquisition.
What would help you sleep soundly at night?
With the risk of sounding ridiculous, the final step in the decision making process implies taking a moment to decide what you really want to do. Would you sleep better knowing that years from now your new asset is continuously appreciating and that you’re building equity? Would you prefer having a third party deal with the technical details of your office space while you’re focusing on your enterprise?
From the responsibilities associated with property ownership to the sheer size of the investment and the flexibility your business requires to thrive in a competitive market, there are numerous aspects to consider in the decision. However, keep in mind that the ability to purchase an office space and the feasibility of this transaction come only after you’ve managed to secure a decent cash flow.