#10: THE PROS AND CONS OF BUYING OR LEASING OFFICE SPACE
"Give a man secure possession of a rock,
and he will turn it into a garden; give him
a nine years lease of a garden, and he will convert it into a desert." - Arthur Young
Home ownership has been called the American Dream for two centuries. Yet, most businessmen and women seldom consider the option of buying or
building their own offices. The advantages of ownership, as opposed to renting office
space, are numerous.
Primarily, owning your own office facility puts you in control.
Instead of paying monthly rent that has no residual value, you build equity in an owned property. Ownership releases you from the concerns of a
fluctuating real estate market. In the case of a privately owned company, the owner(s) can buy or build a structure and lease it to the company,
thereby creating an asset that may increase in value, can be depreciated
to the owner's benefit, and may be retained in the event the company is sold.
In many cases, an owner can buy an existing building and receive considerable tax benefits in the remodeling or restoration.
Rent excess space
An owner also can share costs by a joint venture with another party, or by renting excess space to others. The latter example may overcome the
problem of the owner's own company outgrowing the building, by simply expanding into
the rental space when the renter's lease expires.
What are the disadvantages of ownership?
The loss of flexibility is the disadvantage that most often is mentioned. If you outgrow an owned facility, or if your space needs shrink you will be
faced with major decisions. Ownership requires the additional task of building maintenance and management. If the roof leaks or the HVAC breaks
down it is your problem, not the landlord's.
Re-sale can be difficult. In buying or building any facility, an owner should give serious consideration to future re-sale. Thus, location and
building configuration and design are important factors.
Factors to consider
To anyone considering ownership here are a few vital factors to be investigated. If buying an existing facility a title search is mandatory.
If tenants will remain in the building, a buyer should insist on tenant statements affirming that the current owner is not in default under their
leases.
An economic analysis of the proposed ownership should be undertaken to compare both short and long-term ownership costs with those of continuing
to rent. Potential code violations and zoning restrictions should be investigated, as well, obviously, as taxes, which will be part of the
economic analysis.
Building a new structure presents some of the above considerations, as well as a new set. Financing becomes more complicated, since, likely, it will
involve construction, as well as long term, borrowing. Construction contracts, timing, and accountability all become important issues. Poor
timing, for instance, can place any business between a rock and a hard place if its existing lease expires before its new building is complete.
The comparison between tenancy and ownership often boils down to the business category. Ownership may not be practical for highly seasonal
businesses, as well as others with space requirements that often fluctuate.
Make commissions work for you
Nevertheless, most business owners should consider ownership as an option to leasing; at least make an economic comparison of the two.
Every landlord, every seller budgets in your rent or the selling price an amount for brokerage commissions. Since you're paying for it, you should see
to it that at least some of this money works for you, rather than going 100% to the landlord's broker, whose interests are the landlord's, not yours.
MalmoMemphis Real Estate represents office tenants. When we represent you
there will never be any question whose interests are paramount in the
negotiations. We handle no office listings. We represent no office building
owners, no office landlords, no office sellers.
We are your expert, independent advocate.
The 'Tenant's 10-Point Guide to Leasing Commercial Space' is copyrighted by
MalmoMemphis Real Estate, Inc., (MMRE) and may not be reproduced without the
expressed written consent of MMRE, and the inclusion of notice that the
material is 'Copyrighted by MalmoMemphis Real Estate, Inc.'
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