Own vs. Lease: Why it's better to own your business location

I once owned a restaurant for which I leased the real estate. It was a good lease. When I sold it, I was essentially selling the terms of the lease. The man who bought my restaurant business also purchased the corner lot next door, and he paid too much money. However, we know that today that corner lot is worth more than the business he bought from me.

Typically, you hear the refrain that "location, location, location" is the key factor to having a successful business. Sure, but the reason I'm in business is to make money.

I encourage restaurateurs who consult with me to own the space they occupy. If you're building out a kitchen, remodeling a dining room, and installing fixtures in a leased space, all you're doing is improving someone else's property.

Many people think nothing about borrowing against their home to start a business. Many others start a business in their home. But if you have a business idea that needs a location, consider buying rather than renting. You may already be looking to borrow startup money. Why not borrow bigger to own the location?

In a world of uncertainty about property values, there are bargains to be found. In fact, the real estate market never really changes. You hear talk about a buyers' market or a sellers' market, but there are always people who want to sell. The trick is to be in a position to take advantage of an opportunity.

Once you're ready to buy, consider a few guidelines about finding prime business real estate opportunities. First, pick your location. For example, you may want to start a restaurant in a particular neighborhood. Then, work it. Drive around that neighborhood and look at the properties. Many times, properties that are in distress have telltale signs. You can catalog such properties, whether commercial or residential, into four groups:

• The property of a growing family or business
  
  
• The property of an older landlord who chooses to defer maintenance
  
  
• Properties of those who are deceased
  
  
• Properties of those who are financially challenged

Look at rentals first. The best ones are usually those that show signs of distress. Sometimes a landlord refuses to maintain the property because there's no money it it. The property may have hit its economic threshold. That is, it's paid for itself already several times over. Additionally, absent landlords sometimes mismanage property. These are key factors in making a deal.

Even if you start small, it's better to own the main asset, which is the property. Be creative in thinking about how to make a location work. When I was in the construction business, we bought a huge lot in the Greenwood area that had a little house for storage. Another classic example is Outback Steakhouse, an international chain known for buying dead space in large parking lots and behind prime locations. As long as there's traffic in the vicinity, you just have to drive it to your door.