Was it the Clash who sang, “Should I rent or should I own?” Ok, maybe not. But, after many years of speaking to many agencies from Indianapolis to the Casbah, renting vs. buying seems to be a common dilemma agents face across the country. Is it worth it to pay $15 per square foot for a building with poor signage and an HVAC system that’s iffy at best? If you’re sick of taking the stairs because the elevator is down — again — and are considering buying your own building, consider these factors.

Should I buy?
Purchasing a property in which to locate your agency does offer quite a few advantages.

Whether you’re buying a condo, a mansion or an office space, real estate remains a tangible investment. Economically speaking, you’re building equity over time as opposed to merely relinquishing the property at the end of your lease with nothing to show for your time and money. From a financial standpoint, potential tax savings through depreciation and paid interest deductions (if you’ve financed) are another bonus.

Landlords want to make money on their investments, of course. By purchasing a property for yourself, you avoid having to pay someone else an additional mark-up to cover their insurance premiums and expenses. And, if you buy, you’ll never find yourself in a pinch because your landlord has suddenly decided to sell the property and move to Florida, or wants to make changes to the space that you don’t agree with. Owning also allows you the freedom and authority to purchase extra space for potential expansion as your business grows, or to sublease the existing space for your own additional income.

For agency owners, being able to put up and monitor your own signage on site is a huge plus when it comes to promoting your business, a factor some landlords may take offense at or have issues with.

Perhaps the biggest pro for many property owners? You get to call all the shots. There’s no need to consult Mr. Furley to ask permission if you want to renovate, upgrade an appliance, add another bathroom or simply paint the walls a different color. You’re in charge, and you make the decisions.

Now for the cons… you’ll need to have enough money in the bank to afford the property you want. Take a good, hard look at your books to determine whether you can comfortably manage the down payment or cash expenditure you’ll need to procure the property, as well as the monthly loan payment. Does the investment make sense within the scope of your overall business plan? Make sure you’re in a position to qualify for credit financing as well. Banks have tightened up their commercial real estate underwriting since 2008, requiring larger down payments and more stringent applicant qualifications.

You’re more locked in if you buy. Depending on how your business develops, it may be harder to sell the property or to add on more space if needed in the future than it is to renegotiate or break a lease and go somewhere else.

When disaster strikes or something goes drastically wrong, you’re on the hook to deal with it. If the parking lot needs snow shoveled, someone breaks a window, or pipes burst in the middle of the night, there’s no one to call for help. You’re the boss, and you’ve got to shell out for the maintenance and upkeep.

Ultimately, you’re at the mercy of the market. While smart real estate investments can bring a profit over time, they may just as easily result in a loss, depending on the whims of the economy.

Should I rent?
The biggest advantage renting offers is flexibility. If you’re a new business owner just starting out, you may not be 100 percent sure of where you’ll want to be five years from now. You might need a bigger space by then, or you might prefer something smaller and more manageable. Renting allows you freedom without long-term commitment. You have a place you can count on for now, but can still keep looking for the perfect property to purchase later, all while getting your agency up and running.

Besides keeping your options open, you’re also keeping more money in your pocket for the immediate future since you’re not laying out a big chunk of cash for a down payment or lump sum purchase. You may prefer to spend your money elsewhere, using it to build your business rather than sinking it into a long-term property. Additionally, if you’re a brand-new business owner, you may need some time to build up your credit in order to position yourself as a preferred loan candidate down the road.

If your geographic market is keeping pace with the rest of the country, chances are there are plenty of rental properties to choose from. Office occupancy is on the upswing in some areas, but for the most part, the inventory of commercial rental properties remains strong and diverse. Who knows, you may even find yourself in a position to take advantage of concessions like reduced rent payments or bonus amenities.

Maintenance issues? Just call Schneider. This is one time when it’s ok to pass the buck. Just dial up the landlord or property manager and let them handle it.

As for the downsides…Your rent may be higher than a loan payment would be if you’d purchased, as landlords have to pass along their own costs for utilities, insurance, taxes and maintenance, in addition to turning a profit for themselves. Keep in mind that leases typically escalate over time in keeping with the costs of inflation. And, your landlord may choose not to renew your lease when it expires, especially if the property is in high demand and can attract new tenants who are willing to pay higher prices, leaving you in the lurch to find a new home.

Ultimately, an analysis of all the major factors and the life cycle of your agency will help you determine whether you should stay or go.

About the Author
As Director of Strategic Markets Underwriting, Brian Henson specializes in underwriting, arranging, and structuring large loan transactions, mergers and acquisitions. He has 12 years of commercial lending experience, primarily with Midwestern banks. Brian started his career underwriting a loan portfolio of middle-market and large corporate commercial borrowers.

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