Which makes more sense for your business — renting or owning your property? Why?

-- Kids Today, 3/1/2008 12:00:00 AM

Ali Wing,  giggle, New York

Buying versus renting — depends on your plans for scale. I can understand the opportunity/investment if you're planning on only a few locations and you have access to own. If you're planning to go in many or certain A+ malls, for instance, owning isn't an option. At the end of the day, I think it's about your best uses of cash and what your competencies are or should be. There will be arguments for cash on both sides depending upon the circumstances. Whether being a landholder is a competency that your business should have probably depends upon your long-term scale and capacity for areas of ownership.

Dave Laub, Room to Grow, Cincinnati, Ohio

The rent versus buy debate has gone on since before we were all born. There are two factors that determine whether we can buy a building. Number one is whether the building is for sale at a reasonable price, and more specifically as a stand-alone building. If the location you desire is in a strip mall and the building is not for sale there is no debate, you will lease.

Number two is whether you have the wealth to purchase the building. If you do not have the wealth and the building is for sale, you will still have to lease. So the answer to your question is really quite simple. If the location you desire is for sale (at a reasonable price) and you have the (liquid) wealth it, absolutely makes sense to buy. The rest of us will lease.

Kim Crouchet, Pippin McGee, Lafayette, La.

In the past, we always preferred to own, simply for the control and the investment; it's more expensive on the front end, but better returns on the back end. And if you ever wanted to sell the business, especially if you had multiple locations, you could always retain the land and charge the new owners rent, which gave you additional income.

On the flip side of the coin, I would say renting also has some strong advantages right now simply because lifestyle centers have become so popular. Typically, furniture stores have always considered themselves destination shopping, but I think many are starting to see a turn in that.

Robb & Stucky and City Furniture, for example, have even moved in to shopping centers for the traffic flow. I currently rent because it allowed me to put my entire investment into inventory and the operations as a start-up business. It would have been difficult to have added in purchasing the land when I was starting up. By not purchasing land, I was able to move my business into a high-traffic lifestyle center that had millions of dollars of development invested in that location versus what I would have been able to invest in a stand-alone, purchased location.

I think that minus the investment part, many retailers are trending towards renting because there are more options available in different centers that are drawing in higher traffic counts. Rooms to Go is a good example. They tend to go into higher traffic areas unless they need a super store, in which case they typically purchase the land and build a very large store that isn't conducive to a multi-use development.

I am enjoying renting because I was able to get in on a great lifestyle multi-use location that has retail on the bottom floors and condos on the upper floors. It's filled with lots of retailers that draw constant traffic whether I am advertising or not. I probably could not have done that with a stand-alone location.

Phil Wrzesinski, Toy House and Baby Too, Jackson, Mich.

We have owned our property from the start so I can only speak to the advantages of owning.

One of those advantages is flexibility. The business pays rent to the property owner, and since the business owner and property owner are same, the property owner can adjust the rent as necessary to help with cash flow and profitability. Also included in flexibility is the ability to make structural changes as necessary to accommodate the business.

Another advantage is in taxes. The business owner can take a lower salary (at the high tax rates) and replace the income with higher rent (lower tax rate).

The third advantage is investment. Although we plan our business for success, there are always factors out of our control — the economy, competition, rules and regulations, unforeseen catastrophes, etc. By owning our property, even if the business fails, we have real estate that has value.

And finally, the last advantage is control — control over maintenance (inside and out), control over costs, control over how long we stay. Plus, as a property owner we get a bigger say (more control) in our downtown development decisions.

Yes, it is expensive. We pay far more to maintain our parking lot than what other downtown businesses pay for the community parking lots. But the difference there is that we have our own parking lot.

If you are planning to be in business for a long time and feel strongly about your location, I believe owning is very advantageous and would not consider doing business otherwise.


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Michael Schaul, Lone Star Baby & Kids, Frisco, Texas

A rent versus buy decision is a basic financial issue in almost every economic modeling exercise. Both can be the right decision depending on the circumstances. Lone Star Baby & Kids owns its own real estate for one of its stores and leases its other two store locations.

If you have the financial wherewithal to build or purchase a building there are significant economic advantages to do so. First of all, as the property appreciates, the store owner wins over time as the value increases. Second, the deprecation and the interest write-off can save thousands of dollars in taxes each year. Finally, instead of paying a landlord you are paying off an asset that one day that could be a sizable portion of your net worth.

Depending on the property location, age of the building, # of years under lease and how aggressive the landlord wants to be with Tenant Improvement Allowances, Free Rent Periods and Lease Rates, there are excellent leasing opportunities where you can limit the risk of the store owner. Rent versus buy decisions need to be evaluated on a case by case basis.

However, the bottom line is, if you can mange the down payment (10-20%), make your monthly mortgage payments and acquire a good piece of real estate that has the opportunity for future appreciation the decision is simple, BUY.

Gary Wiggs, W.S. Badcock, Mulberry, Fla.

Our business model is so much different than the other retailers as we’re a franchised organization. We have stores who own and rent or are in the process of buying their buildings. It is much better to me to buy or own. If purchasing, you have more tax benefits as well the ability of your capital investment growing in owning a building. If you sold it in 20 years it will most certainly be worth more. Initial investment of buying is much bigger and riskier. If the location loses it appeal you’re stuck with it. Your situation and capital will dictate your decisions.

Ali Wing giggle

Dave Laub Room to Grow

Kim Crouchet Pippin McGee

Phil Wrzesinski Toy House