It was August 2006, and I was sitting in the 10' x 10' office space that I started renting three and a half years prior when I started my solo practice. I received a call from a local real estate broker. She explained that she had a new listing, a house on Main Street in town, and that she thought that it would be a great place for a professional office. She wondered whether I was interested in taking a look at it.
Sort of curious and wanting to cultivate a relationship with the broker in hopes of future referrals, I told her that I was not really looking to move my office, but that I would take a look at the property.
Once I decided that working for someone else was not a great fit for me, I made a quick exit from the law firm that employed me. One of my immediate concerns was to obtain office space. I did not think I would be able to separate myself from my work if I had an office in my home, so I ruled the home office option out.
Purchasing a building was out of the question due to the lack of available properties in my town, the time it would take to acquire the property, and, most importantly, the lack of cash flow to make mortgage payment on the property. So the only clear option at that time was to rent office space.
Fortunately, another lawyer in town had recently built an office building on the outskirts of town, and he was looking for tenants. I rented a 10' x 10' space with a shared conference room. It was a good arrangement, the rent was reasonable, the owner had his office there so we could bounce ideas off each other, and the other tenants in the building were potential referral sources. Three and a half years passed.
As the broker walked me into the front of the house, she effectively explained her vision of a law office in the building: “Enter into the reception area, a conference room there, an office back there, and by the way did you notice the detail in the woodwork?” It did make sense but could I, should I, buy it? Long story short: I bought it.
Here are some of the thoughts, many of which overlapped, that went through my head as I lay awake in bed at night trying to decide if I should take advantage of the opportunity to purchase the house for my office.
Could I afford it? Would I be able to make the mortgage payments? Would I be able to obtain the financing that I needed? Would I be able to pay the utility bills, insurance, property taxes, lawn maintenance, snow removal, etc.? What about emergencies?
I spoke to my bank, and it was possible to obtain the financing. I did the numbers in my head and created a number of spreadsheets. My conclusion was that I could do it financially, but that it may be tight initially.
Because I did not need the whole building for my office use, I decided to offer the upper floors for rent as an apartment. I have not yet found a tenant for the apartment, but when I do, the rental income will be helpful in paying for the building.
Is it a good location? Is there enough parking? Is this location where I want to be for the long term? Should I own it through a separate entity? What are the tax consequences?
Moving my office from the outskirts of town to the center (Main Street) of town made a lot of sense. It would shorten my commute from two miles to one mile, and the office would be much more visible.
I live and practice in the same community, and now that my solo practice is established and growing, it made sense to obtain a permanent office location, or at least one that is not subject to the expiration of a lease or an increase in rent.
I decided that there were tax benefits to owing the building through a limited liability company and having my law firm (an S-corporation) lease the office space from the limited liability company, so that is the ownership structure that I set up.
Who will clean the office, remove the snow (no small consideration in Maine), and mow the lawn? Should I do it, or should I hire someone? Will I have the time to do those tasks and to make sure the house expenses get paid?
My rent check covered everything but my telephone and Internet service. However, as the owner of a building, I would have to make sure all the utility and maintenance bills were paid by their due dates.
Initially, I decided to do the cleaning, snow removal, and lawn maintenance myself to help with the cash flow issues. However, I am now hiring a neighbor’s son to mow the grass. I am sure that eventually I will outsource all of those tasks.
The administrative tasks have not been too time-consuming. Good accounting software and calendaring and some organization has made these tasks just part of the daily routine.
Social and Health Issues
Will it be too quiet in the office? Will I still be able to bounce ideas off someone? Will I just be adding additional stress to my life?
I do not have an assistant or others who are regularly around the office, so at times it is really quiet in the office. However, the quietness is useful in getting work done, so this has not been a big issue. I do not need to be down the hall from someone to bounce ideas off someone. I can communicate with other lawyers in many other ways, so this, too, was not a huge drawback to purchasing a building.
I actually see more people on a day-to-day basis now because now I can walk to places in the downtown area (post office, other law firms, banks, etc.) and meet people on the street.
So should you buy or rent your office space? If you can afford to do it financially, buy it! The hassles of ownership are outweighed by the fact that you are paying yourself and investing in an appreciable asset rather than paying for someone else’s investment. That sounds very similar to why many of us are solos…
David Levesque has a general civil practice with concentrations in tax, real estate, and estate planning that he conducts from his building on Main Street in Damariscotta, Maine. He can be reached at 207-563-7416 or email@example.com.