Personal Preference & Long-Term Vision
- The decision to own or lease is ultimately based on what the owner envisions for the business and its future.
- Assess if the business is projected to stay in the same location for the long term (5–10 years or more) and if owning makes sense for growth plans.
- Evaluate if the control and stability of owning align with the business model versus the flexibility of leasing.
Impact on Business Valuation- Owning the location typically does not increase the overall value of the business when selling.
- Buyers are generally more interested in purchasing the business itself, not the real estate. They would evaluate the business based on its earnings, not the land or building.
- Selling the property with the business can yield additional income, but it’s not required for a business sale.
Financial Investment and Resources- Owning requires a larger upfront capital investment, which may not be feasible for every entrepreneur.
- For those with the financial resources, owning can be beneficial, as it means building equity and potentially earning money from the property sale later.
- If leasing, funds can be directed toward expanding or improving the business rather than being tied up in property ownership.
Business Flexibility and Location Commitment- Leasing provides flexibility if the business needs to relocate or expand rapidly without being tied down by property ownership.
- Owning ties you to a particular location, which could be limiting if business needs change.
- Consider how long the business is expected to stay in a location before making a decision.
Tax Benefits and Financial Structuring- Owning offers potential tax benefits by creating separate LLCs—one for the business operations and one for the real estate.
- This structure allows for deductions on taxes and better asset protection.
- Leasing can also offer some tax write-offs, such as rent payments, which are fully deductible as business expenses.
Asset Building vs. Operational Simplicity- Owning real estate adds to the owner’s personal and business assets, creating long-term financial benefits.
- Leasing simplifies operations, avoiding property management responsibilities like maintenance, taxes, and insurance.
- Weigh whether adding the complexity of owning real estate is worth the potential long-term gain or if focusing solely on business operations is more beneficial.
Genesis Case Example- Genesis owns only two of its locations, while the rest are leased. This demonstrates a hybrid model where both ownership and leasing can coexist based on the needs of individual locations.
- This strategy allowed flexibility for growth without being tied to every location, showing that leasing can still result in profitable and successful expansion.
Advantages & Disadvantages of Owning- Pros: Builds equity, control over the property, potential for long-term profit through property appreciation.
- Cons: High upfront costs, long-term commitment, responsibility for maintenance and property management.
Advantages & Disadvantages of Leasing- Pros: Lower upfront costs, more flexibility, no responsibility for property management, easily relocatable if needed.
- Cons: No equity building, rent can increase over time, long-term value limited to business operations.
Final Decision: Business Needs Over Property- The decision to own or lease depends entirely on the business model and financial situation.
- Both approaches can lead to long-term success if executed well.
- Entrepreneurs should focus on building a profitable business and choose the real estate strategy that best supports their growth goals.