Today I would like to share with you my thoughts on leasing versus buying commercial property and the reasons behind why I chose to lease preexisting commercial space.
I am not sure if it is simply a matter of preference to lease or buy commercial space, or a matter of necessity. When you rent, say an apartment in which to live, you may be doing so because you simply do not want to be tied to one spot for very long (preference), or you may rent because it is all your budget will allow (necessity). In the case of commercial property, sometimes the reasons are not so clear cut. Both have their benefits and pitfalls, but in the end, I believe it is a matter of what works best for you and your business. Most financial experts will tell you that buying is the smartest move, and I wholeheartedly respect and understand this. But at this point in time, buying is just not an option. So for me, I choose to lease out of necessity.
What are some of the benefits of leasing commercial space? For me, there were three big points to consider. Number one being cash reserves. Leasing would allow me to allocate a large portion of funds toward the growth of my business. This means more money to remodel, advertise, or stock up on supplies. And maybe later down the road, say in a few years when the business is more stable, I would still have the option to purchase. This was the most appealing factor for me because I have yet to buy all of my commercial appliances.
The second most important factor for me was the option to move if my business happened to outgrow its space. By signing a three- to five-year lease, I could at least have the option to move if this were the case. Thus far, finding a building big enough to suit my needs, yet small enough to remain personable, has been my biggest challenge. In my search to find the perfect structure to house my business, all I can envision is a quaint, boutique-style studio. In no way do I want a large, open cafeteria-style room that can feed the masses. I want my shop to ooze warmth and lull you with cozy feelings of home.
Another important thing I needed to consider was property repairs. When you lease, the property is taken care of by property management, so if the air conditioner goes out or high winds blow off part of the roof, you are not responsible for the repairs. Here in the Midwest, violent weather often strikes, so structure repair is inevitable. With most of my cash tied up in appliances, advertising, and product, I was not too confident there would be much left for building repairs/maintenance.
The biggest downfall to leasing would be that I will never own the building in which I operate my business. This means, if the landlord wanted to hike up my rent after the lease was up, he or she would have every right to do so. It also means the property could be sold to another property management corporation, and they might have intentions to kick out every tenant and start over. Not owning the property also means I would miss out on appreciation potential and having the building as an asset.
Leasing also means that before making any improvements or changes to the building’s structure, I would have to clear all plans with the landlord. Most landlords do not even live in the same state in which you do your business. At least, that is what I am finding out here. Sometimes the communication process can get drawn out for weeks or even months!
Owning commercial space has other benefits. In addition to the appreciation potential mentioned above, or not having to wait four weeks before hearing from the landlord, you could buy commercial property that already has other tenants so that the building pays for itself! Now that is an ideal situation, if you don't mind managing tenants! [EDITOR'S NOTE: I bought my commercial space fully equipped, and that was a also huge plus for me. Putting in a ventilation and fire suppression system over the ovens would normally have cost tens of thousands of dollars, but it was already there, which made my purchase price a great deal!]
If you are looking to purchase or lease commercial property, here are some other key points to consider. Or at least some that I found helpful:
- Check zoning limitations to see what your city will allow you to do with/on the property.
- Research the area. Is the building in a growing economic area and will there be an influx of population?
- Observe the location. Is the property in a highly trafficked location with easy access?
- Beware of deferred maintenance, the practice of postponing repairs to either infrastructure or personal property in order to save costs. This can put your business in serious jeopardy if not taken care of up front.
Just for fun, and to provoke thought, I have attached three photos. All three of these buildings are commercial properties that I have looked at in the last nine months. Just by looking at these photos, which one appeals to you the most and in which one could you imagine yourself baking and running your business? All three are in high traffic areas with high visibility and have easy ingress and egress.
P.S. I actually put an offer on one of these. Can you guess which one?
Rebecca Litterell is owner of Litterelly Delicious Cakery. She started decorating cakes for family and friends in 2006 and eventually incorporated cookies into the mix in 2011. She is completely self-taught and passionate about teaching her skill and know-how to others, both online and in the cake and cookie classes that she hosts at her local community college. Before cakes and cookies, Rebecca spent most of her career in the medical field. She is a mother of three and a wife, and loves living in the country. When she’s not in the kitchen, she’s riding her horses.
Photo credit: Rebecca Litterell
Note: Storefront Diaries is a monthly Cookie Connection blog feature written by Rebecca Litterell that chronicles her journey of opening up a brick-and-mortar business after years of baking out of her home. Its content expresses the views of the author and not necessarily those of this site, its owners, its administrators, or its employees. Catch up on all of Rebecca's past Cookie Connection posts here.
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