Once your company’s profits begin growing and your business stabilizes, you might want to consider owning your quarters rather than renting.
To evaluate the comparative costs, consider a reasonable length of time, such as 10 years. Include in your calculations the purchase price of a desirable building at the location you want. You can depreciate the cost of the building (“improvements”) but not the cost of the land. Add together the cost of financing 100% of your purchase price at the prevailing interest rate, maintenance costs, straight-line depreciation and property taxes. The total of these items is your “rent equivalent.”
Compare this cost figure with your projected rental costs for 10 years and factor in expected rent increases (4% per year is realistic). Don’t overlook your company’s future expansion needs. Whether you buy or rent, you must be able to expand or contract space as needed. If you plan to own your space, you may want to consider buying a larger building and renting out part of your space on a short-term basis.