Deciding whether to buy or rent office space is a key decision new business owners and entrepreneurs face. Perhaps you've run your business from home until now, and it's finally time to move out into a separate location; or maybe you have a new business on your hands and would like to get it off on the right foot. In any case, it will likely be necessary to conduct careful research in order to make an educated decision.
You should ask yourself the following three questions as you make this decision, and based on your answers, it should become more clear whether buying or renting office space is right for you and your business. These questions don't cover every aspect of the decision, of course, but will get you started.
Q: How long do I expect to run this business at this location?
A: In an ideal world, every business owner could answer this question in accurate detail. Realistically, of course, there are plenty of factors that are impossible to predict, including how well the business will flourish in its particular location.
With that said, however, there are some cases where a business owner may know for a fact that the business will not be operating long-term – at least not in its current location. If you are planning to re-locate in the near future, or if you're considering selling the business or using it as a stepping-stone to move on to other ventures within the next five years or less, you're probably better off renting office space as opposed to buying. The rental itself may be more expensive, but you'll save the money in convenience when it comes time to pack up and go.
Q: Can I reasonably predict how large my business is going to grow, and what type of office space will work for me long-term?
A:This is where your business plan comes in handy – along with a bit of faith and guessing, of course. Attempting to determine how quickly and how much your business will grow isn't easy, but you should try to have a basic idea of what to expect in the next five to ten years.
If you buy office space, it's a fine line between buying something too large (and expensive), or something too small that your business will just outgrow in the next few years. If you can't predict with reasonable certainty what size space will suit you down the road, you're probably better off renting, at least until you see how the business does during its humble beginnings.
Q: If the office space is no longer suitable for my business, for any reason, can I make use of it or profit from it in other ways?
A:You should always consider the worst-case scenario, and if you're considering buying office space, the worst-case scenario would be getting stuck with an office that isn't useful to you in any way.
Maybe your business doesn't work out, or you have to move out of the area unexpectedly, or perhaps your business grows or changes to the point where it needs a new location. Regardless of the reason, you should think long and hard about what would happen should you purchase office space and then have it become useless to your business.
Consider factors like the market in your area: Could you quickly resell it? Rent it out to other business owners? Are you financially equipped to do either? Would you be able to hang on financially until you found a new use for it? Are you considering another business venture in the future that could make use of it? Basically, if all of your answers are “no” and you think you'd be stuck with the property should this situation occur, you should seriously lean toward renting as opposed to buying. Useless property is one of the biggest financial drains imaginable, and can make or break the profit of a new business owner.
Remember that there is no rule that says you can't rent office space now and buy later, once you've got a better idea of what your needs might be and how your business will develop. If you've already established these factors and you have a good grasp on what type of space suits you, with no plans for change in the near future, it's certainly worth looking at the current market to see if buying is the best option. For most business owners, buying is an act of confidence and certainty. While deciding to rent office space is usually more expensive than buying, what you're paying for is the freedom to change your mind – or your situation – down the road.
Regardless of whether you decide to buy or rent office space, you should get a commercial real estate attorney involved. Your attorney can look over any lease agreements or agreements to buy, and help you ensure that whatever decision you make, you are legally protected on all important matters.