Why Owning Your Business Location Might Make More Sense Than You Think
The case for purchasing the space your business already depends on
Most business owners lease space for their business, especially in the early years, since it is often the most common path, the least financial cost, and often the easiest option when launching a business, but this does not mean it is the best long-term choice. If your business has a stable location and a financial track record to demonstrate to a lender, ownership is worth a serious look, not just as a real estate decision, but as a business decision.
Some Industries Feel This More Than Others
Contractors, tradespeople, and landscaping companies are good examples. Leased yard space paired with an office to run the business from is genuinely hard to find in this market, and when it comes to available, it rarely stays available long. I have worked with three landscaping and landscape improvement companies who purchased land with an office specifically because they were tired of competing for that combination and wanted to own their own destiny instead of hoping the right leased yard opened up again. One completed the purchase through a 1031 exchange, one through owner financing, and one through a Small Business Administration (SBA) loan, three different paths to the same underlying decision, that the space itself was too central to the business to keep leaving to chance.
You Are Already Paying for Space Either Way
As a tenant, every month you pay rent to a landlord. Possibly, you may also pay triple net (NNN) charges and Common Area Maintenance (CAM) fees. As a commercial property owner, all of these charges you pay monthly could build equity in an asset you own and control. Over time, the building itself could become one of your business's most valuable assets, separate from the worth of your business.
Owner-User Financing Is More Accessible Than Many Business Owners Realize
Programs like SBA 504 and 7(a) loans exist specifically for business owners purchasing commercial real estate for their business use and occupancy, often with lower down payments, as low as 10 percent, than a conventional commercial loan would require. These programs are not available to investors buying a building to lease to a tenant, they are designed for owner-users, which puts purchasing within reach of businesses that might assume ownership is out of the realm of possibility. If you do not know how to find a lender to inquire about SBA, ask a trusted commercial real estate broker or ask your current bank if they assist with SBA loans.
Ownership Gives You Control Leasing Cannot
Leasing is typically on the landlord's terms, their definition of market lease rate, along with landlord's rules that may come with restrictions on signage, limits on modifications, and a lease term that eventually ends whether your business is ready to move. Owning your space means you decide what changes to make, when to make them, and you are never negotiating a renewal with someone else holding the leverage, except maybe the commercial real estate lender holding the note to your property.
Do Not Overestimate How Easy It Is to Offset Your Costs
If the property is larger than your business currently needs, you technically have the option to lease out the additional space, whether that is an office with access to a shared conference room, yard space subleased to another operator, or as much as 49 percent of the building. In practice, owners consistently overestimate how easy this actually is. Finding a tenant who wants exactly the leftover space you have, on a timeline that works for you, is not guaranteed and can take far longer than expected. Treat any income from extra space as a possible bonus once you have found the right tenant, not as a number you should count on when running your initial numbers on the purchase.
Ownership Becomes Part of Your Exit Strategy
When you eventually sell your business, or retire from it, the commercial real estate is a separate asset you can sell, lease, or will to your heirs, independent of the business itself. This matters most for businesses that do not have a client list to sell. A contractor or landscaping business, for example, may not have a portfolio of recurring clients that transfers cleanly to a buyer, but the equipment and the property itself become real, sellable assets as part of that exit, value that exists whether or not the business's client relationships transfer at all.
It Is Not the Right Move for Every Business
Ownership makes the most sense when your space needs are stable and your business has enough of a track record to qualify for financing. If you expect to outgrow your current footprint quickly, or you are still finding your footing, leasing may still be the better fit for now. The two are not competing philosophies, they fit different stages of a business.
If you are wondering whether your business is able to purchase rather than lease, that conversation is worth having. Schedule a consultation to talk through what makes sense for your specific situation.