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 option.
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.
If you have questions, contact the Experts at Henssler Financial: