For many businesses, a brick and mortar office is key to the daily functions of the organizations. Perhaps you’ve already had your own office space for some time now, but your company has grown to the point where you need to work in a larger space. Maybe you conceded some amenities when picking your current space for economic reasons. The parking situation near your building could have undergone a transformation, or maybe it’s just time for a change … Whatever the situation, while you’re planning the move, you should consider more than just where the office is located and how you’ll transport all those computers. You also need to make the decision about whether you’ll lease or buy office space in the Treasure Valley. This can be a tough decision to make, but if you keep these considerations in mind, you can figure out which option works best for you.
Buying an office space can seem very tempting at first. After all, you own the building and can now do with it what you please, whether that’s minor changes in the decor or major ones like remodeling. However, that creative freedom comes at a price. Most loans require a minimum of 10-20% down. Any improvements needed before move in will be your cost as well. After you have taken care of the up-front costs, typically a monthly mortgage cost, coupled with maintenance and insurance costs, is less than a lease payment. However, this is not always the case. If your business is already pretty well-established, you might not worry about making these mortgage payments. However, if you’re still working on getting your professional feet off the ground and dealing with income fluctuations, missing a payment could be dangerous.
In addition to the mortgage, you will incur costs to insure, maintain and manage the property. When you lease a space, most of these costs and jobs are handled by the owner or manager. They may be built into your rent, but you are not managing them day to day. Think about who will handle the day to day operations of owning. Somebody needs to hire vendors, sweep the common areas and deal with plumbing emergencies.
Think about your long-term goals and vision for your business. Where do you expect it will be in three to five years? Leasing will offer more flexibility if quick growth is on the horizon. By negotiating options to expand or terminate your lease, you can often accommodate growth for even a long term lease. However, if you own the office space and grow quickly, you now have to squeeze in more people without being able to expand. Owning a building larger than you need and leasing the excess space to a third party can be a solution, but now you are a landlord. Is this the best use of your time and can you withstand long periods of vacancy in a down market? What is your exit strategy if you outgrow your building?
The nature of your business should also be considered when weighing whether to buy or lease space. Businesses that expand and contract with the economy, such as real estate and mortgage companies, might be wise to consider how owning a building might impact them during these swings in space needs. Also, how much money will you be investing in specific improvements to the building? When investing hundreds of thousands of dollars into a space, it’s no wonder many professionals (physicians, for example) own their buildings; Putting that kind of money into someone else’s building doesn’t always make sense and could be wise.
These are just a few of the considerations weighing on business owners debating between buying or leasing commercial real estate.
To find out more about the commercial real estate market in the Boise area, contact us for a free, no-obligation consultation with one of our knowledgeable realty advisors.