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Ask Dave

Should I Buy a Building for my Business or Keep Renting Space?

Tucker has been in business for just over a year. Now, he has an opportunity to buy the building he's in.

QUESTION: Tucker in Topeka, Kan., has been renting a 5,000-square-foot space for his small business for just over a year. His landlord asked if he’d like to buy the location, which includes two adjacent tenants, for between $150,000 and $200,000. He’s paying $1,300 a month for rent, and that would almost cover the monthly mortgage payment on the building. What does Dave think?

ANSWER: Yeah, but that’s the great misnomer about these situations. You can get out of a tenant situation and move on. You can’t just get out of a mortgage situation and move on without selling the property.

Here’s the thing: If your business had been around a little longer, and you had the cash to buy it, I might suggest doing this. But here’s the problem with buying real estate associated with the operation of your business. I’ve got this problem right now. I’ve got a 64,000-square-foot building that our business operates in. I’ve also leased another 40,000 feet out back from another company that owns it, and I bought another building next door, because we’ve outgrown the first building. Now I’m having to fight all the time to make sure I don’t conform my business to my building, and instead make the building conform to the business.

It’s really tempting, in other words, to not grow and have to move out of this place we love. But we’re going to have to move out of it. We’re not going to be here in three or four years; we’re going to be somewhere else. And I’m going to have a really nice, empty office building at that point — that’s paid for, that I’ll rent. Otherwise, this business is going to be stuck.

But the problem can be that if the business is growing, is shrinking or hasn’t been open long enough to stabilize, a piece of real estate can start being the tail that wags the dog, instead of the dog wagging the tail. I love real estate, but I’d remain a tenant in your situation. A, you don’t have the money; and B, you haven’t been doing this long enough to know what your real estate and physical plant needs are going to be.