Many small business owners have often considered buying a commercial space instead of handing over rent to a landlord. The problem is that the idea may sound wonderful, but what about the hidden costs of owning your office space?
Yes, there are some positives to owning your office space, such as giving your small business stability and adding a sense of certainty. As the owner, you know that you will not encounter an unpredictable rent hike or be forced out at the end of a lease. With the proper planning, you will know in advance how much your monthly costs will be, long in advance.
As the owner of your office space, you alone decide what type of office culture and set-up your business will have. For example, you get to choose an open concept, cubicles or even where the walls for individual offices should be. This sounds like a great strategy and can be a real advantage to owning as opposed to renting. However, owning office space can be great for some small businesses, but a problem for others.
For some small businesses, owning can be less expensive than than the cost of renting. Real estate can be a great investment for you as the owner of the business. With the right investment made at high-profile, up-and-coming locations, you could watch the value of that investment grow over time.
The time to buy is when interest rates are low, because instead of renting you could be gaining equity! Depending on the terms and equity required, investing in an office may be a great option. This is especially true if you are able to purchase a building that offers additional rentable space to other businesses to increase the return on your investment.
But owning an office, or any real estate, can also be a distraction. So if you have concerns such as roof repairs and taxes, you will be taking your attention away from your primary business objectives. You have to consider if you can you afford the time away from your core business duties.
Besides the time you need to take care of owner ship of your office space, what else are you losing out on? If you must deal with all your office ownership headaches, how is your business going to grow? May may insist that they have competent staff who will take care of the business while they are designing and renovating an office that they own. But are you going to trust your employees to build growth while you are distracted setting up your newly owned office space?
If you buy an office space in a commercial area, besides the mortgage there are other things to consider. You will be directly paying for things that, as a renter, you did not have to worry about before – including property taxes, common-area maintenance fees and insurance. Even if you buy a small office, the extra costs can accumulate to several hundred dollars more per month.
You also have to consider that real estate markets can be very volatile, which means your large investment (and source of equity) is potentially at risk. You have to decide if your small business can afford the surprises that could devalue your office investment. Other unexpected “surprises” of office ownership could also be keeping up with repairs and maintenance. You have to think if your core business could handle the financial hit of a problem that affected your office space.
Another hidden cost of owning rather than renting your office space is the capital that is tied up in the space that might be needed for business expansion. Not just the financial capital, but also your credit availability is affected – not only your small business credit, but also your personal credit rating. Remember that your personal credit score will be considered for, and impacted by, any mortgage loan you take out for your small business. Even owning limited liability companies can effect your personal credit score.
Also, do not forget the professional costs involved in owning your office space. One of the first steps before deciding to purchase office space as opposed to renting office space, is to talk to your accountant. He or she will likely ask you if you can afford to purchase rather than rent. It will, in the end, be your decision. If your accountant thinks it will be a sound idea, then you need will need to pay a lawyer to help you navigate through the rest of the process – and these professional legal charges are not going to be cheap.
Renting office space at a serviced office space can save your small business money; but it can can also save you the headaches associated with buying office space. You need to focus on the primary goals and core activities that make your business successful. Buying an office space can be a distraction that does not help your small business grow.