Probably the biggest regret of my working life was renting office space as opposed to buying it. Like many of you, Grandy & Associates started with pretty much no money. After sharing office space with a friend for a while, I eventually rented an office for $750/month. Money was tight in those early years, but $750/month fit nicely into my budget. As time went on, and the company grew, the rental cost became a smaller and smaller part of the overall budget.
One day, out of the clear blue, the 600-room hotel where my office was located decided to close…that weekend! I was forced to leave. That provided a wonderful opportunity to look for a building to purchase, right? Well, I didn’t. Instead, I found an unfinished office space near my home and the owner was willing to custom design the interior for my needs. I was thrilled. Brand new offices for the same $750/month rate.
Our company remained in those new offices for many years, including several years AFTER the company was sold. Upon full retirement, my new home was an office in my basement.
Then I reflected on my monthly investment of $750/month for over 25 years. It didn’t take a brain surgeon or a PHD in math to multiply 25 years times $750/month. Wow, that totaled $225,000!!! That would have purchased a nice building back in the early 1990s. When the company was sold and relocated to Green Bay, WI, I could have sold the building (with a lot of appreciation) or rented it out for additional retirement income. Hindsight is 20/20. Without question, buying a building during the early part of my career would have been a win-win years later.
Today the smart thing to do would be to personally purchase the office space and then lease it back to the company. As long as the rental rate per square foot was within the norm of rental space pricing in the general area all would be well. The rental expense for the company would be a 100% expense, just like normal rent. The reality is that the monthly payment on the property would likely be less than what the company was renting it for…therefore generating an immediate profit. Each year the “New Rental Contract” could be increased generating a bit more profit. When retirement eventually rolled around the property would likely have appreciated providing the opportunity to sell it at a profit. If the property were kept it would provide for additional retirement income.
Once a company has settled into its “rental” property it can be a real hassle to move. My suggestion is to look a few years down the road and count the cost. Your thinking concerning purchasing a building, in lieu of renting one, might just change a bit. I wish I had taken some time to look down the road. My decision, considering renting verses buying, would have been quite different!
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