For an entrepreneurial business owner, the allure of purchasing a building is often hard to suppress. The act of buying a commercial space sometimes becomes one of creating a sense of permanence for the company.
Eliminate emotion from the decision-making process and focus instead on choosing the kind of commercial space that will empower the business today and well into the future.
If you find yourself in a position of weighing whether to purchase or lease a space to support and grow your business, keep these tips in mind:
1. Figure out why you might want to own (or rent) a space.
Does your decision to own an office flow from a key part of the company's goals? Or has it resulted from an emotional stance, perhaps reflecting your sense of business independence? The answer needs to be fleshed out before arriving at a decision. There is not necessarily a right or wrong answer, but responding to this question will guide your real estate approach along the correct path.
You might arrive at other realizations while undergoing this decision-making process. You may come to see the long-term benefits of investing in an asset or recognize that you have only enough capital for one investment and therefore opt to put the funds toward your business operations as opposed to buying and maintaining a building.
2. Calculate the true costs.
Much like owning a home, maintaining and preserving the value of an office space can add up. While leasing can appear expensive, so is the cost of replacing a roof, retrofitting an elevator cab or adding new rooftop heating, ventilation, and air conditioning units. Do your homework and hire a professional to complete a facility condition assessment so that potential hidden costs are revealed. Avoid surprises.
In most leasing arrangements, the landlord will hire a property manager to care for the facility and ensure ongoing operations. But when you own the asset, you are the landlord. You will need to assign an employee to assume the responsibilities associated with maintaining the structure or put in place contacts for service providers to do so. In either case, ownership comes with expenses, responsibility and opportunity cost.
3. Anticipate the future of the business.
The efforts that sustained the business thus far may lead to further growth. Can the space you're eyeing for a purchase support where the business is headed in the future? Be aware of future company changes that could lead to growth or even downsizing. Don’t make a real estate decision that could restrict future opportunity.
This is where leasing can add flexibility for a business’s future plans and growth.
4. Understand the underlying marketplace fundamentals.
Keep in mind that moving takes time and money. When leasing space, you must deal every few years with market fluctuations (reflected in the rent). If the market goes in an unfavorable direction, that could mean another move for your business.
If you're purchasing a space yet the proposed facility cannot handle growth in the size of your company, consider who might be the potential buyers or tenants of the building down the road. The value assigned to the purchase should also take into account property assets anticipated to recover or gain in the future.
Keep in mind that entering into a purchase without considering an exit strategy is not sound.