Congratulations on embarking on your journey as a Ziebart franchisee! As you dive into this exciting venture, one crucial decision awaits: determining the optimal approach to acquiring your business location. The choice between buying or leasing property carries significant implications for your franchise's success. Let's explore the pros and cons of each option to help you make an informed decision.
The Pros of Owning Commercial Real Estate
Building Equity: Purchasing property allows you to build equity over time, benefiting from potential appreciation in property value.
Building Equity: Unlike lease payments to landlords, mortgage payments contribute to your equity, serving as an investment in your future.
Tax Advantages: Enjoy tax benefits such as deductible interest and depreciation on the property, enhancing your financial returns. If you decide to purchase commercial property, you can depreciate your building over the life of the asset. This can save you a lot of money when calculating taxes and earnings.
Ownership: With ownership comes control, empowering you to customize and utilize the space according to your business needs. Ownership via mortgage can significantly reduce monthly payment by having ownership, mortgage vs lease payment with no equity. Leasing you cannot avoid CPI increases, CAM fees etc.
Expansion Opportunities: Leveraging the equity gained in your commercial property, you can explore opportunities to expand your portfolio with additional Ziebart locations by borrowing against your equity.
Cons of Buying Commercial Real Estate
Upfront Costs: Purchasing property requires a substantial down payment and additional fees, typically around 20% of the property's value.
Higher Qualifying Requirements: Securing financing for commercial real estate can be challenging, especially obtaining favorable loan terms.
Liabilities: As a property owner, you assume responsibility for property-related liabilities and may need to provide personal guarantees.
Pros of Leasing Commercial Real Estate
More Liquidity: Leasing requires less upfront capital, preserving liquidity for other business needs.
Fixed Monthly Cost: Enjoy predictable monthly expenses with lease payments.
Tax Breaks: Lease payments, along with property insurance, taxes, utilities, and maintenance costs, are often tax-deductible, offering potential savings.
Flexibility: Leasing provides flexibility, making it easier to qualify, move, or expand without the complexities of property ownership.
Cons of Leasing Commercial Real Estate
No Equity or Appreciation: Unlike property ownership, leasing does not afford the opportunity to build equity or benefit from property appreciation.
No Passive Income: You cannot generate rental income by subleasing the property to others, missing out on potential passive income streams.
Rent Costs: Monthly lease payments may exceed mortgage payments, impacting on your bottom line over time.
Limited Control: Lease agreements dictate terms and conditions, limiting your control over the property.
When to Buy or Lease Commercial Property:
Buy: Consider purchasing property if you have sufficient cash for a down payment, aim to build equity and generate rental income, desire control over the space, and are prepared for property-related responsibilities.
Lease: Opt for leasing if you prioritize flexibility, want to preserve liquidity, seek tax deductions, prefer to avoid property maintenance, or need to operate in a prime but costly location.
Ultimately, the decision to buy or lease property for your Ziebart franchise hinges on various factors, including your financial position, long-term goals, and risk tolerance. Evaluate the pros and cons carefully and choose the option that aligns best with your business strategy and vision for success. Regardless of your choice, your journey as a Ziebart franchisee promises exciting opportunities for growth and prosperity.