Should franchisees be buying their real estate? It depends.
There are plenty of plates you’ll need to keep spinning as a franchisee, but real estate is one factor that deserves your full attention. Besides the importance of selecting your site location, you’ll need to determine whether it makes more sense to buy the real estate outright or rent it.
There are many components at play when making this decision, not least of which is whether your franchisor allows you to lease in the first place. If the decision is ultimately yours, here are some general considerations to keep in mind.
Buying means more control
If you’re renting your real estate, you’re beholden to your landlord. This can get in the way if you need to make certain changes to the building for your business. Barring local zoning ordinances, purchasing real estate outright gives you the freedom to do whatever you want to a space.
Renting can reduce start-up costs
Purchasing real estate can be the most expensive part of entering a franchise system. Leasing will significantly lower costs, freeing up more money for other aspects of your business.
Short-term benefits vs. long-term advantages
Time is a factor you must consider in your decision. For instance, while renting can be a short-term cost-saver, it can end up costing you more in the long run. Besides the potential for rent increases in the future, monthly leasing costs will be an expense you’ll have to deal with in perpetuity. Purchasing is more expensive at first, but will ultimately eliminate a considerable reoccurring cost for your business.
Real estate investment can be smart in and of itself
Even if your business ends up floundering, real estate can be an excellent investment. You could end up renting out the space yourself, or selling it for a tidy profit if land values are appreciating in the area. Owning property also gives you equity you can make use of in the future, not to mention provide you with extra tax savings.
In the end, purchasing real estate is likely the smarter long-term decision, but for business owners who may not have the capital necessary to do so, renting a space can be the ideal solution.