A lot of choices go into selecting the perfect location for your business to open its doors. You need to determine the right neighborhood, the right size building, the exterior façade and more. But before you can decide on any of that, you have to answer one fundamental question: Will you be renting or buying your property?
There are pros and cons to both choices. Renting might give you more flexibility, but owning might allow you to capitalize on opportunities in the long term. Think carefully about this decision before committing to your startup’s new home. Additionally, if you are securing a license to operate a franchise, the franchisor will be able to provide critical assistance in terms of location selection, lease negotiations and more.
Renting (or leasing) a commercial property is quite common, especially among small businesses that anticipate uncertain growth or want to free up startup capital and have ample cash flow.
By leasing a property, you allow your business to remain flexible as it grows. You’re not tied to a particular location and can move into something larger or a space that better meets your needs with ease. This is particularly useful for companies that aren’t heavily reliant on business location.
Renting also helps you retain more of your startup capital. Instead of spending a large chunk of financing on a down payment, you will simply owe a deposit and a fixed monthly payment to your landlord. This frees up cash to invest in other areas of the business to help it grow. However, you should remember that rent can increase over time.
Finally, renting might help your cash flow when you consider maintenance and repair costs. If your building is owned by another party, they are responsible for those unexpected expenses—not your business—allowing you to stay stable with your payments.
On the other hand, owning a commercial property is a great choice for entrepreneurs who want to lock in a desirable business location and build equity for the long term.
In the right market conditions, you might be able to buy property with a low mortgage rate. This allows you to easily build equity in your business, rather than pay money each month to the property owner. Better yet, the property might appreciate over time, meaning you could sell for a profit if the time is right.
Owning your commercial property is also beneficial if your business is heavily dependent on location, such as a boutique or restaurant, or would be difficult to relocate. If you find a great location, you don’t want to risk your rent rising too high or your lease not being renewed, forcing you to move. You can avoid this by buying property outright.
Additionally, if your business requires substantial changes to be made to a property, or if you’d like to build your business from the ground up, you’ll likely need to purchase land and retain full ownership of the building.
Don’t let funding stand in the way of getting your perfect location
Often, business owners want to purchase property for their business but lack the capital to make it happen. At Tenet Financial Group, we connect entrepreneurs to efficient financing methods like Rollovers as Business Startups (ROBS) to unlock the opportunity to build equity in their own business. Contact us today to learn more!