Should You Buy Your Own Office Space?
Whether you are a long-time business owner or just starting
out, this is a question you may eventually face at some point: Should you buy
your own office space?
While the answer will depend on the needs of your business
and your individual circumstances, you may want to consider the following
questions to help determine whether buying your own office space is the best
Can you handle the up-front costs?
Do you have the capital to handle the up-front costs
associated with buying your own office? Are you taking out a mortgage to
purchase the property? If so, you'll have to come up with a down payment, which
is usually 10% to 20% of the purchase price, depending on your lender and
creditworthiness. You'll also be required to pay certain costs and fees
associated with obtaining the mortgage and closing the real estate transaction.
Is the new space move-in ready, or does it need substantial
renovations or improvements? Does the space come furnished and properly
equipped, or will you need to purchase office furniture and equipment? If you
need to make renovations or purchase your own furnishings, you'll have to
factor in those costs as well.
What are the tax benefits?
Have you considered the tax benefits of purchasing your own
office space? For example, if you are taking out a mortgage loan to purchase
the property, the interest you pay on your mortgage loan may be tax deductible.
You may be able to deduct other expenses as well, such as repair/maintenance
costs and property taxes.
You might be able to minimize your tax liability even
further through asset depreciation. The IRS allows business owners to take a
depreciation deduction for a decline in property value over time.
Is there a potential for rental income?
Does the property have more space than you need for your
current business? If the office space is big enough, one way to help defray the
costs associated with owning your own space is by renting out any extra space
you may have.
While you are likely to encounter expenses associated with
managing the property for a tenant, you can use the extra rental income to
either help increase your business's cash flow or pay down the existing
mortgage loan on the property.
Is there room for growth?
Are you planning for your business to occupy your new space
for a long period of time? If so, will your new space grow with you? When
purchasing your own office space, you'll want to make sure that you will have
enough room to grow if you ever choose to expand your business down the road.
How can you benefit from equity and asset appreciation?
Two of the main advantages of real estate investing are
equity and asset appreciation. If you are planning on taking out a mortgage to
purchase the property, your monthly payments will go toward paying down your
principal loan amount, allowing you to build equity in the property. Once you
have built up enough equity, you may be able to tap into it as a source of
capital for the future growth of your business.
As for asset appreciation, the property may appreciate in
value over time. If at a later date you sell the property, you can use any net
sale proceeds however you choose, including to help fund additional business
ventures or even your retirement savings.