Starting a business, or buying a business involves many decisions ranging from what one should put on your business card to where to locate your business. Many small businesses are run from ones own personal residence, and there are many advantages and disadvantages that can come along with that strategy. But operating your business from a leased space, rented space, or a space you or your business would buy, can be a very important decision for your business. The business that I had owned for 20 years, I had owned the building and surrounding property, (I still own and lease back, even after the sale of the business).
Currently my role as a business broker has me working with business owners that both own the building they operate the business from they are selling and business owners that rent their space. Of almost 1000 businesses sold in the state of Florida in the last year, thru the Business Brokers of Florida of which I am a member of, less than 8% of them involve real estate. Most business owners in Florida that sold their business rent their buildings. There are just way more non- owner occupied properties than owner occupied properties. Again I owned and currently own and rent out the building I operated my business out of. My thought process was that I had long term plans for my business and I viewed it as a means of building equity. I do look at it a little different in todays economy.
I do know of several business owners here in Florida that bought their building 5-10 years ago, ( they viewed the acquisition as an investment) and while the business may be doing somewhat ok during these difficult lean times, the building is so upside down that it may take 5, 10+ years or more, before the amount owed on the building is equal to or greater than market value. To exacerbate that dilemma, ” like spaces” may be rented at a fraction of what monthly mortgage, insurance, and taxes payments may be. It would be nice to be able to treat this expense as other expenses and when you have a more cost effective means just pursue that route, but buying/selling a building (or a business) is not a very liquid investment- especially in todays market.
Some Pros of owning a building may include:
- more control, no landlord to report to and changes to your building allow you greater flexibility
- potentially over the long haul you can accumulate equity
- If you are buying now, are you buying at a real value price, and its hard to argue that locking in at todays interest rates would not be a good thing.
On the Con side:
- One must consider the opportunity cost of the money that is devoted to a down payment when buying a building- how much could that money have helped you grow your business?
- If you need to move your business a rental/lease agreement may allow you greater flexibility.
- Owning a building is more responsibility
Operating lean, low overhead, low monthly expenses greatly enhances the likelihood of acceptable profits. I am pleased I had owned my building I operated my business out of, but would I make the same decision today to buy a building to run my business from? If I were buying a business here in Florida would I require that I can buy the building along with the business I am buying- today I am not so sure. Leaning towards the flexibility of renting until further clarity on where on economy is truly heading seems to be a reasonable approach.