Rent or buy? While most people have asked themselves this about where they live – there are unique factors that come into play when considering whether to purchase or rent for your business. For some business owners, this won’t be a question that is even considered. Buying property is usually much more expensive than renting. With purchasing you need to get a loan (usually) and put down 10 – 35%. When buying that is usually a hefty sum putting this option out of reach for many.
If you have the means to make this choice, then I would strongly urge you to buy for three reasons:
1) Save money long-term. While you will need more cash up front, you will save money if you are in this for the long haul. Most SBA loans max at 20 years. That means you won’t have to pay rent once the loan is paid back. That can be a saves of thousands – and even tens of thousands per month. Also, your monthly payment stays the same if your rate is fixed providing helpful stability for a new business. If you rent, it’s indefinite and it will usually go up each year.
2) Better return on investment. When you are forced to put in a $30k ventilation system it doesn’t hurt as bad when you own the business. Landlords are very reluctant to help pay for your build out – or upgrades to the space for your business. That usually means its up to you. When you own the building it’s much easier to put money into it because you’ll get that return on investment – not your landlord.
3) Stability and security. This is the most important reason to buy instead of rent. For many businesses, their location is the reason they are profitable. Can you imagine putting $100k into your space, building up your clientele, and then having your landlord decide not to renew your lease? Or doubling your rent? With many businesses, their location is critical. When you own your building and land, no one can make you move or cancel a lease (except for the uncommon exception of eminent domain).
Next, 30 days to Becoming an Entrepreneur: Picking a location for your business
Photo Credit: HLIT