Buying vs. Leasing: The Case for Owning the Property for Your Franchise Business
Whether your still vetting franchise business opportunities or you’ve already chosen one, at some point you are going to have to decide whether to buy or lease the property it will live on. Thinking about this aspect of the franchise process sooner, rather than later, will help you more thoroughly evaluate franchise concepts and begin appropriate financial planning early, if appropriate. David Schuman, a franchisee with Kiddie Academy, has some helpful insights into why he made the decision to purchase and renovate the space where he will be opening his franchise in July 2012.
Q: Tell us about the advantages of buying vs. leasing.
We decided that a mortgage gave us a much lower debt service, and buying was more profitable. We wanted to have some equity in the property when all was said and done. We don’t have any landlord hassles. I’m enjoying the freedom I have to remodel my center inside and out, which I plan to open in July 2012, AND we will never have to worry about rent increases.
Q: It’s been said that purchasing options are less abundant than leasing opportunities. How did you go about your search to find a location for purchase?
We began searching newspapers and the Internet for available properties. Many were going to require significant changes and, in a lot of cases, didn’t provide the space we were going to need.
The lesson to be learned is to be patient in your site selection process. Think forward. The cost implications for remodeling may cost you more than the time it takes to find the right site.
Every type of franchise business has different needs and requirements when it comes to choosing real estate, but the benefits of owning outweigh those of leasing in many cases. Our advice is to learn from the experience of franchisees already in the system, discuss options with your franchisor’s real estate team, and be patient. A great location that builds the strength of the business is one of the most important assets for your franchise.
Do you have any advice or thoughts about leasing vs. buying a property? Post your comments below.