To lease, or not to lease, that is the question. Fair enough, Shakespeare was never my strong suit, but I know a thing or two about investing and economics. The question of buying versus leasing office space in NYC is a rather multi-layered affair. Factors to take into account: many. Decisions to make: only one. For perspective, even the question of living in the Virgin Islands has its good and bad sides to consider. For many, there is that deep pitted feeling, somewhere in your stomach, right next to the place those butterflies reside, that says you should always buy. Here, words such as ‘equity’ and ‘investment’ lie sequestered, free from the effects of outside influences. Gut feelings are a mighty tool, but not always precise. Best to consider the pros and cons of both options before deciding what to do.
Best to Buy, Right?
With only two options available, let’s look at the advantages and disadvantages of purchasing office space. One thing to keep in mind is that these pros and cons are somewhat relative. A deal-breaker for some could represent but a mere inconvenience for others. Starting capital, business goals, even the type of business you are setting up will all affect how you view the following points.
The Good Stuff
Control – One of the big ones. Yes, this coin has another side, but we will cover it later. For the time being, it translates to you not having to answer to a landlord. It gives you the option to do as you please, as long as you stay within the confines of city regulations. When running a business, the unknown is a source of stress. Stability is a good thing.
Equity and Extras – Let’s cover the buzzword first. Yes, you are building equity, leaving something for retirement. Commercial and residential spaces are generally highly sought-after in NYC. Owning some of it seems like a prudent financial move. Unless something crazy, like a global pandemic, shows up, you can expect property values to appreciate over time. The Covid-19 reference is not there to scare you; it merely serves as a gentle reminder that there are no guarantees. Everything comes with a risk. All one can do is make what looks like the soundest decision, given all the factors at their disposal.
Deductions and depreciation – Tax deductions and building depreciation, to be precise. Owning and running a business unlocks certain tax deductions other mere mortals are not privy to. Depreciation is an annual income tax deduction. One you can usually claim for up to 39 years.
The Not So Good Stuff
Alas, it can’t all be fun and games. Here are the cons:
Commitment – We mentioned control as a positive, but on the flip side, you might find commitment can be quite constraining. A lack of flexibility can be a problem for many. If all goes well, you may outgrow your current office space. Buying or leasing more space could be the only option. This one is somewhat bittersweet, though. If you need more space, that really is a sign you’re doing well! The problem is, selling the current office space takes up time and has certain costs attached to it.
Costs – First of all, the upfront costs will be higher, but that’s not too shocking. People tend to forget that there is a certain opportunity cost hidden within this cost. See, the hefty down payment represents funds being redirected from your business to the office space itself. Furthermore, maintenance and insurance are added financial responsibilities. Just like there is no landlord to call you, you also have no landlord to call when something needs to be fixed. Just one more thing, before opting for a loan, be sure to do your research and see what banks offer the best terms.
Leasing It Is Then!
Well, not quite. There is no clear-cut answer when thinking about buying versus leasing office space in NYC. Just like with purchasing, renting also has its nice sides and drawbacks.
The Nice Side
Flexibility – Unless this is the first sentence you’ve read in this article, you probably understand why I started with this point. A five-year lease, for example, allows you to see how both your business and the market will evolve. Furthermore, it is always easy to move out when no mortgage keeps you locked into place.
Time and money – Time is money, but here you get both. With lower upfront costs, it means there are more funds left over for the development of your business. When you do not own the space, fewer headaches and fewer hours of the day are diverted to solving issues that are not directly related to your core business.
Location, location, location – The chances of a new business purchasing office space in a high-demand area are relatively low. Renting in such an area, however, could be possible.
The Not So Nice
As you can imagine, what were advantages for buying will now, invariably, pop up as disadvantages for leasing:
No equity – There is no equity build-up here. The rent you pay is a cost in the purest sense of the word.
Ironically, less flexibility – In the sense that, even though it’s easier to relocate, there are many limiting factors when it comes to the space itself. You cannot do with it as you see fit but will need the landlord’s permission for any changes you wish to undertake.
Uncertainty – Essentially, you are at someone else’s mercy. You depend on your landlord more than you might like, from possible eviction issues to when they need to come around to fix what needs to be fixed.
One More Thing to Consider – Relocation
There is one single thread that binds both buying and leasing. In both cases, you will need to move your business. NYC is a busy place. Ok, that’s quite the understatement. But because of this, moving an office in such a city is quite a challenging endeavor. Finding the right people for the job is essential. You just managed to maul over all the pros and cons of buying versus leasing. Having gone through all of that, I doubt you want to face the logistical nightmare that is moving your business. With the right company in your employ, you can enjoy a successful and speedy relocation process. Now isn’t that nice?
No Legacy is so Rich as Honesty
Thought I would end strong on another quote from Shakespeare! It seemed fitting because, as was alluded to earlier, what you decide to do will ultimately depend on your circumstances. Be honest with yourself; take a look at your financial assets, your long-term goals, and even things such as your work ethic and how committed you are to the project. If you need additional data on real estate, you know where to go. With all this information, there is no reason why the dilemma of buying versus leasing office space in NYC will not be one you can resolve successfully!