In our ongoing series discussing the benefits and drawbacks to consider when deciding the best way to acquire your place of business we continue today on choosing between —
- Building your business’ venue
- Buying an existing space that meets most of your needs with minimal renovations
- Buying a place that will need a complete overhaul
- Or leasing, which is what this article covers, broken down into two sections —
- Part A: This is going over renting vs. buying in general, what types and sizes of businesses leasing may work for and which ones will probably not, and
- Part B: making sure that the space you buy and the landlord you buy from will work for you and what kind of modifications you should consider making to it.
It’s the classic dilemma, to buy or to rent. Obviously renting tends to be cheaper in the short run, not including the possibility of a low-interest, low down-payment loan, but of course you are not getting any equity in the building while renting and as such will not be acquiring any real assets should the business go under from the space itself. Buying or building your own on the other hand will likely only increase in value over time, and even when taking a loan it allows you to gain equity and have real assets that can be viewed as an investment.
That being said, some businesses are simply never going to generate enough revenue or have enough funds available to outright own the location in which they operate. Also, another positive effect if you are leasing is that you do not need to worry about loan payments, property taxes, or making repairs, as generally the landlord will be contractually obligated to help you, should any problems arise with the latter two.
Another big factor is what kind of business or organization are you. A public entity like a school is likely going to be unable to find a big enough space to lease, and even if they could it would be unwise to be making so many modifications on a building that you do not actually out right own. Similarly, things that require specialized facilities like bowling alleys, movie theaters, grocery stores, and so on will likely be a valuable enough operation to justify owning the space they operate from, especially to make sure that there is no uncertainty at any point in the future of the company. But if you are a one-man shop or a small family-owned business, buying a building could cost as much revenue as you generate in several years.
There are also a lot of businesses that only require desks and maybe a conference room which can be easily found and will simply make more economic sense because of the size of their company. Though of course they will be losing out on any long-term equity if they cannot afford the building, or at least a down payment on a loan for it. In these cases your choice is simple, as it becomes not about the best choice, but the only one. But in many cases you can still make the best of whatever situation is in front of you.