If the thought of spending a huge chunk of cash on a permanent building scares the heck out of you, there are other options
“There is nothing more secure than land and a building.” Commercial real estate expert Dale Willerton says that is the bottom line when it comes to property, but it doesn’t mean that leasing isn’t appropriate. Willerton makes a living at it; he’s a commercial lease consultant known as The Lease Coach and author of books on the topic, such as Negotiating Commercial Leases & Renewals For Dummies.
“I really advocate buying and building if you can,” he says. “The less important location is to you, the more you should try to own the property. Buying a property and paying a mortgage is better than paying a lease. Eventually, you pay off the mortgage.”
Leasing may be right for some, and it is easier to accomplish. “For every 99 locations for lease, there’s only one location for sale,” he says. “There are more than 10 million companies leasing space in North America. The vast majority of those need to be in a retail store front, in a shopping mall — a place where someone has already bought the land and built a building.”
Willerton, who has been coaching and negotiating for business owners since 1993, also points out that borrowing money to buy property is cheaper than ever right now. Still, there are pros and cons to owning property:
- Mortgage payments eventually end; lease payments are forever. Monthly mortgage payments are often very close to rent payments.
- Equity in your property is an asset that usually increases in value, sometimes greatly. Some owners who sell or close their business will keep the property for a steady income stream.
- You don't have landlord hassles. "Ownership is empowering and it feels great, most of the time," he says.
- You would have to move from your current space that a competing business might move into. Landlords like to rent to companies similar to one that has occupied a building in the past.
- You might have to sacrifice on location. Ownership opportunities are usually in secodary locations and not on the busier streets. "If you're willing to drive five minutes farther, you can get land cheaper," he says.
- You may have to deal with various ownership issues like HVAC, buildling maintenance, etc., that otherwise a landlord would handle. He warns, however, that some leases will require you to provide that same level of maintenance.
Many people use real estate agents to help find property for either sale or lease. Willerton warns that agents generally work for the person providing the commission, which is normally the property owner.
“Just because someone says they’re representing you, if you’re not paying them, you’re probably not being represented properly.” He suggests making the investment by paying for that expertise, such as by hiring a buyer’s agent who is paid to represent you.
As he points out in his book about commercial leasing, your building and location is the platform for your entire business. “Your business may be able to change its products, services, pricing, and marketing, but you’ve got to make the location work.”