Pro Studio Basics

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Pro Studio Basics

12. The Studio: Hire, Rent or Buy?

The following advice is specific to Australia. Most Western countries have similar structures and the broad principles are similar. However, you should consult your own advisers for specific information. 

Traditionally, a photographer works from a studio, even though these days this is not always the case. Many advertising and fashion photographers hire studios when required; corporate and commercial photographers may work only on location, so they only need an office; and even wedding and portrait photographers need a studio less and less these days because so much work is done away from the studio.

But these are generalisations and, whether a studio is required or not, most photographers need a base to house their office, computers and equipment. Let's call it a studio!

Hire Or Rent?

Working from home (or a small office) and hiring a studio when it is needed can be the cheapest option for a photographer who only shoots a few jobs a month, but it can be comparatively expensive for someone who is shooting in a studio every day.

Simply put, a hire studio is a business that wishes to make a profit, so when you hire a studio you are paying for the cost of the premises plus a profit for the operator. On a daily basis, hiring a studio is more expensive than renting a studio on an annual basis.

However, if you rent a studio for a year for $30,000 (including outgoings such as rates and repairs), but you only use it one day a week, this would be more expensive than hiring a studio for $500 a day. On a daily basis it looks great, but if the studio is idle for 80 percent of the time, each day is actually costing you the equivalent of five days.

For photographers starting out, it may be more profitable to work from a home office and hiring a studio when it is required. Then, as they become more established and busier, they may wish to rent their own studio.

Note that renting a studio for a year will cost you more than just the rent - there's also rates, electricity, repairs and the fit-out, not to mention additional office equipment, maybe a kitchen, changing room and so on. In the accompanying example where we've used $30,000 as the annual rent and outgoings, the actual rent paid to the landlord might only be $20,000.

For all the hassle involved of renting and maintaining a studio, you might be happier to hire a studio when required, and spend up to $40,000 a year doing so, before you considered it worthwhile to rent your own.

Rent or Buy?

Once you're renting a studio, many people will tell you that rent is dead money. At the end of the rental period, you either sign up for another period or you move out. You have nothing left to show for your money.

Rather than renting, many business people consider buying their own premises. Instead of paying rent to a landlord, they pay interest to a bank, plus of course they have to repay the loan.

The best part about buying your studio is that once you've paid off the loan, you own the studio. It's a great form of superannuation because when you retire, you can become a landlord yourself and generate rental income.

So, when should you buy a studio instead of renting one? This will depend on a number of factors, including the current cost of a studio property, the cost of money (the going loan interest rate), how profitable your business is and your view on property values in the future.

For instance, if you are currently paying $30,000 a year in rent, you might consider buying a studio and paying up to $50,000 a year in bank interest and loan repayments if the business is profitable and you believe the studio will increase in value. Although you're spending $20,000 a year more, you're buying something.

On the other hand, if your studio makes very little profit, then buying may never be an option for you because you couldn't afford the extra payments (and perhaps this is as good an incentive as any to ensure you're charging enough for your work).

In the accompanying example, if you're paying $30,000 a year and you can buy your studio for $200,000, then you'd be a mug not to because the annual repayment would be cheaper than the rent. But this is an unlikely situation. Chances are that your studio will cost at least $30,000 per year to buy, in which case it is still a good option.

However, even if the studio were to cost $500,000 and your annual repayments considerably more than your annual rental, this could still be a good financial move. The extra $20,000 a year you pay could be considered savings for your retirement and, instead of putting extra money into a super fund, you could use it to repay the studio mortgage.

Home Office Deductible?

Perhaps the cheapest rent of all is working from home because it mightn't cost your business anything at all.

Working from home might also be tax deductible. If you rent your home, you have everything to gain, but if you own your home, then claiming it as an office might negative some capital gains tax concessions.

Working from home, you may be able to claim rates, water, electricity, telephone, repairs and interest on mortgage payments - to the extent that these expenses relate to running your business. Usually this ‘extent' is calculated on a floor area basis. If your studio and/or office is equal to 20% of the house, then you can claim 20% of those expenses.

Note, this deduction is not normally available for employee photographers, especially if their employer provides studio or office space.
Also, if you do claim part of your home as a business expense, you will lose the principle residence exemption for capital gains tax. In the above example, if you had always claimed 20% of the house expenses as a deduction, then you would be liabile to capital gains tax on 20% of your capital gain when you sell the house.

This area is quite complicated and much will depend on your individual circumstances, so please obtain specialist advice.

Hire Vs Rent Example

Annual studio rental                      $ 30,000
Daily studio hire                            $ 500

No of Days Studio Used                Annual Cost
Once per month - 12 days               $ 6,000
Once per fortnight - 26 days           $ 13,000
Once per week - 52 days                $ 26,000
Twice a week - 104 days                 $ 52,000
Four days a week - 208 days          $104,000

Rent Vs Buy Example

Annual studio rental    $ 30,000
Interest rate 8%
Repayment Period 20 years*

Cost of Studio         Annual Repayment
$200,000                    $20,074
$300,000                    $30,112
$500,000                    $50,186
* Commercial loans may be over shorter periods of 7 or 10 years. Calculations ignore the tax effect as only the interest component of the repayment is deductible.

The information in this article is general in nature and should not replace personal advice given by your own legal and financial advisers.

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