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Advantages to Leasing Your Office Space

For many entrepreneurs and small business owners, the question of whether to buy property or to lease office space can be a confusing issue. If you ask a professional real estate broker, he or she will probably tell you that it depends on the particular situation. The truth is, when it comes to this important business decision, there really is no “one size fits all” solution.

Of course, if you are lacking sufficient capital to purchase a commercial building, then the decision becomes an easy one. But leasing may be the smartest move anyway: Statistics show that most new business owners start out by leasing office space, and many business consultants advise leasing your work space until you get on your feet and your business starts operating in the black.


Some advantages to leasing your business property:

  • Flexibility. One obvious advantage to leasing property is the flexibility it provides. When the lease is up, you can easily relocate to another office that better suits the needs of your business and your budget.
  • Fewer responsibilities. The property manager or landlord is the one responsible for maintenance, security, remodeling, and other management issues.
  • Deductible payments. If the arrangement is a true lease (and the Internal Revenue Service agrees it is), then lease payments are deductible as operating expenses.
  • No mortgage. Not being locked into a mortgage loan allows you to free up cash and put it where it is needed. This is especially helpful for new business owners.
  • Tax credits. An investment tax credit is a dollar-for-dollar reduction in federal income taxes, equal to 10 percent of the cost of the equipment in the year the equipment is put into use. While the lessor usually takes the tax credit, it may pass part of the benefit on to the lessee in the form of a reduced lease payment.
  • Negotiable rates. If real estate properties in your area are plentiful, it may be possible to negotiate a lower price on your lease amount.
  • Less tax paperwork. If your business is leasing office space, your income tax return will be simpler to file, compared to the endless forms that building owners must fill out.
  • No down payment. When you purchase a building, you typically pay 20 to 25 percent of the price as a down payment and then mortgage the balance. When you lease office space, you need only pay one or two months of the lease value before moving in, which can be a real blessing for cash-strapped small business owners.
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Here are some questions to ask before signing a lease

  • Does the lease specifically state the square footage of the premises? The total rentable square footage of the building?
  • Is the tenant’s share of expenses based on total square footage of the building or the square footage leased by the landlord? Your share may be lower if it’s based on the total square footage.
  • Do the base year expenses reflect full occupancy or are they adjusted to full occupancy (i.e., base year real estate taxes on an unfinished building are lower than in subsequent years)?
  • Must the landlord provide a detailed list of expenses, prepared by a CPA, to support increases?
  • Instant offices offer fully-equipped professional office premises, along with reception and telephone answering services and secretarial support. Thanks to flexible short-term lease arrangements, their executive suites are an ideal solution for growing businesses.
  • Does the lease clearly give the tenant the right to audit the landlord’s books or records?
  • If use of the building is interrupted, does the lease define the remedies available to the tenant, such as rent abatement or lease cancellation?
  • If the landlord does not meet repair responsibilities, can the tenant make the repairs, after notice to the landlord, and deduct the cost from the rent?
  • Is the landlord required to obtain nondisturbance agreements from current and future lenders?
  • Does the lease clearly define how disputes will be decided?
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Pros and Cons of Office Space Leasing or Buying

All growing small businesses may someday be faced with the question of leasing versus buying office space. This question has many pros and cons. In order to make your decision easier, your Guide for Small Business Information has assembled the key facts of leasing versus buying office space.

With ever-changing U.S. office vacancy rates and stock markets, it is uncertain what the future may bring. A small business owner needs to carefully weigh the pros and cons of leasing or buying office space.

    Pros of Office Space Buying

  • Fixed Costs: Locking in your commercial mortgage long-term can give your business clear, fixed costs.
  • Tax Deductions: The associated costs of owning and running a commercial space can provide expense deductions in the form of mortgage interest, property taxes and other items.
  • Additional Income: Owning your office can offer the advantage of renting out extra office space adding another source of income.
  • Retirement Fund: The prospect of owning commercial space and having the property appreciate over time, allows the owner to sell out and fund their retirement.Cons of Office Space Buying
  • Lack of Flexibility: A new or growing business may experience unexpected needs in the future.
  • If your business continues growing, your owned office space may become inadequate forcing a sale of the property.
  • Upfront Costs: Buying commercial space will initially cost far more upfront. There are property, appraisal and maintenance costs along with a large down payment and possible property improvement costs.Pros of Office Space Leasing
  • Prime Property: A leasing office space option provides a business with the chance to rent in an area with a good location and high image. If your small business is dependent on location and image, such as retail or restaurants, the leasing option is much more affordable.
  • Free-up Working Capital: With your money not tied up in real estate your business can respond to opportunities in the market. In addition, your ability to borrow funds will not be as limited as with buying office space.
  • More Time: Any type of ownership comes with headaches. A leasing option affords the time to focus solely on running your business.Cons of Office Space Leasing
  • Variable Costs: With a leasing option you may be subject to annual rent increases and higher costs at the time when your lease expires.
  • No Equity: While leasing you will be funding someone else’s retirement with your lease payments. However, owning requires you to get involved in the property management business.

The answer to lease or buy office space is not clear-cut. Your decision will hinge on financial, tax, and personal issues. Do not make this decision sparingly. Bring in your accountant and financial planner to guide you with the best advice.

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Office Space Lease – 6 Tactics to Help You Rent Your Ideal Space

Most business owners fear the day they will have to look for office space.

Whether your business is growing or you are starting a new venture, you will always face the same problem: finding the perfect location.

It will take you time, effort, dedication and money to go through hundreds of classified ads and internet referral websites. Of course, you could let a commercial real estate broker do the job for you, but like any consulting services, it will cost you a lot.

The challenge is easier than you think!

By asking yourself the following 6 questions, you will be able to identify your needs and optimize your research. This small reflection will save you time and money. And maybe most importantly, your search will be stress less.

1) Where is my target audience located?

We often confuse where we want to be, and where we need to be. A health professional recently contacted me asking for prices on offices in the Broadway Corridor (Vancouver, BC). He was about to launch a corporate massage therapy business and needed some office space. Instead of talking numbers, I simply asked him where his clients where coming from. His answer was “Downtown Vancouver”.

He suddenly realized the magnitude of his mistake. He wanted to save money before building his clientele. Yet it was more important to be close to his customers.

2) Will an accessible location benefit my business?

Not only should you consider this question from a customer angle but also with your employee in mind. There is nothing more frustrating than driving around the block until you can find a parking spot, or walking half a mile because your office is too far from public transportation. For example, an international language school needs to be central, and handy to travel to.

Keep that in mind and you will see smiling people instead of irritated ones!

3) How should the space be configured to create an efficient work environment?

This comes back to how you want your team to operate. Do they need privacy, and therefore a fully partitioned space, for example investment banks or law firms? Or do they have to work with one another most of the day and consequently would fit best in an open layout (i.e. graphic design firms)?

Few landlords are flexible on customizing their space. Give preference to the ones who can accommodate your requirements.

4) What corporate image do I want to show my clients/customers?

For most businesses, image is everything. It took years of hard labor to take it to the top, and your image should be taken in consideration when choosing your office space. You should consider both the exterior of the building, and the interior of the suite.

I remember going for a job interview and being shocked by the poor condition of the carpet in the reception. Is this the image you want your business to project?

On the other hand, a friend of mine recently invested a large amount of money with a Vancouver private bank. Despite being relatively new in the business, they appear to be trustworthy and stable thanks to a luxurious office located in a stunning building Downtown.

In other words, look for owners who are willing to renovate their space prior to leasing it. This will show that they are serious about their business, as they recognize that you are improving their office and increasing its value.

5) What type of tenancy aligns best with my company’s objectives?

Do you have a short term or a longer term business plan? Are you in a market where the vacancy rate is below 5% and you need to secure a space for 3 to 5 years? Can your future landlord provide you with alternatives while your business is evolving?

Planning ahead is your best option in such a tight commercial market. Securing long term leases will give you stability. Negotiating lease portability will help you anticipate the growth of your business.

6) Will I be using amenities such as a boardroom or reception services?

“There Ain’t No Such Thing As A Free Lunch”
Who has never heard this sentence from Robert A. Heinlein? Nothing is free in the corporate world, and these services are no exception. They will either be included in your monthly rent, or charged separately. So think twice before choosing an office for its extra features!

Will you really use a boardroom, and how often? If you only use it once a month, then it doesn’t make a difference whether it is billed on top of your rent or not. However, if you need it more frequently, then prefer a contract where the executive services are included in your monthly charges.

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