Lease or buy a building for a new business

[chloe]

Is it more advisable to lease space rather than buying/building an office especially when starting of a new business?
Why is this so?
Any opinion and/or suggestions regarding this matter..

Thanks in advance!

[Kate]

I'd say lease when first starting the bussiness. If it busts, you don't want to be stuck with a building you have to sell.

[aj8]

For a new business, if you can work from home, this is cheaper even than leasing. If it's just you working and not a huge workforce from day one.

As a company I started working from my back bedroom 6 years ago, then moved to an office that I was renting about 8 miles from home about a year later. Then this time last year purchased {on a mortgage, obviously} the business premises Freehold that we now occupy, which is in a different nearby town.

It takes a bit of 'history' to get a bank to lend you money to buy property. Quite appart from the fact that we wouldn't ever have been able to afford to buy a property from the word go, we would never have been creditworthy enough for the mortgage.

[Blue Cat Buxton]

If you need the credability of an office address the service/virtual offices could be a consideration for companies starting up - you only have a monthly commitment and can grow or shrink the size to fit the business needs. Then when you are established you can lease longer term or buy.

As AJ8 says, you need to be able to convince a bank to lend you the money to buy (and also work out the best use for your capital), but in the long run paying a mortgage will mean you have an accumulating asset.

[Chris]

Still, if you can afford it, you need it, and your business is successful and stable enough to warrant it, buying is so much better than leasing.

If you buy your building you should form a second company to be your own landlord. Your one business then pays your other business rent. The business paying the rent really only needs to break even as the business collecting the rent is building all kinds of equity in the building.

[aj8]

Good point Chris,

But ............. In the UK there are issues associated with being one's own landlord; i.e. operating two separate companies.

It is easier to own the building personally then rent it to the company.

CIC (close investment company) regulations brought in by the Inland Revenue mean that for one company to rent premises to another company without incurring a higher rate of corporation tax [across both iirc] then more than 50% of the rental income must be from NON associated tenants. This means an ideal situation would be to share a building your property company owns with another tenant, making sure they pay slightly more than half of the rent.

In my own case, at present we are trading through the property company as well [i.e. just one company]. We have been doing this while we acquire some rental income. Now that we have this (in fact we have 2 tenants now so will only be paying about 1/3rd of the combined rent), we are going to break things up so that the property company rents to my own trading company as well as the two other companies in the building.

[Cutter]

I'm assuming the original poster is in the US. If yes then what Chris says is absolutely true & there are big tax advantages in doing this. You can continue to own that building and have some one else manage it for years to come, even if you move out of state.

If you are in LA then I'm not exactly sure what I would do. Definately an overvalued market right now.