How do you assess the impact of leasing vs buying office space on your balance sheet and cash flow?

1 Lease or buy: what are the differences?

When you lease office space, you pay a monthly or annual rent to the landlord for the use of the property. You do not own the property, but you have the flexibility to relocate or renegotiate the terms of the lease. When you buy office space, you pay a lump sum or a mortgage to acquire the property. You own the property, but you have to bear the costs and risks of maintenance, taxes, and depreciation.

2 Lease or buy: what are the benefits?

Leasing office space has some benefits, such as lower upfront costs, more liquidity, and less exposure to market fluctuations. You can also deduct the rent as a business expense and enjoy the amenities and services provided by the landlord. Buying office space has some benefits, such as building equity, having more control and stability, and benefiting from capital appreciation. You can also deduct the interest and depreciation as business expenses and customize the space to suit your needs.

3 Lease or buy: what are the drawbacks?

Leasing office space has some drawbacks, such as higher long-term costs, less autonomy, and potential rent increases. You may also face lease termination, eviction, or relocation issues and have to comply with the landlord's rules and regulations. Buying office space has some drawbacks, such as higher upfront costs, more debt, and less flexibility. You may also face market risks, property taxes, and maintenance costs and have to deal with the legal and financial aspects of ownership.

4 Lease or buy: how to compare the costs?

One way to compare the costs of leasing vs buying office space is to use the net present value (NPV) method. NPV is the difference between the present value of the cash inflows and outflows of a project or investment. A positive NPV means that the project or investment is profitable, while a negative NPV means that it is not. To calculate the NPV of leasing vs buying office space, you need to estimate the cash flows of both options over a certain period and discount them by an appropriate rate.

5 Lease or buy: how to consider the non-financial factors?

Besides the costs, there are other factors that may influence your decision to lease or buy office space, such as your business goals, growth plans, market conditions, and location preferences. For example, if you expect to expand or relocate your business in the near future, leasing may be a better option than buying. If you want to establish a long-term presence and identity in a certain area, buying may be a better option than leasing.

6 Lease or buy: how to make the best decision?

There is no definitive answer to whether leasing or buying office space is better for your business. It depends on your specific situation, needs, and preferences. The best way to make the best decision is to do a thorough analysis of both options, considering the financial and non-financial factors, and weigh the pros and cons. You may also want to consult with a professional corporate real estate advisor who can help you evaluate the options and negotiate the best terms .