Buy the building for a small business?
I've been renting a 5,000-square-foot space for my small business. I've been at this location for just over a year, and the landlord has asked me if I'd like to buy the entire location. It includes two adjacent tenants, and he's asking between $150,000 and $200,000. I'm currently paying $1,300 a month rent, and that amount would almost cover the monthly mortgage payment if I bought the building. What should I do?
Dear Dave,
I've been renting a 5,000-square-foot space for my small business. I've been at this location for just over a year, and the landlord has asked me if I'd like to buy the entire location. It includes two adjacent tenants, and he's asking between $150,000 and $200,000. I'm currently paying $1,300 a month rent, and that amount would almost cover the monthly mortgage payment if I bought the building. What should I do?
-Tucker
Dear Tucker,
That's the great misnomer about those kinds of situations. You can get out of a tenant situation pretty easily and move on. But you can't just get out of a mortgage situation and move on without selling the property.
If your business had been around a little longer, and you had the cash to buy it, I might suggest doing this. But there's a problem with buying real estate associated with the operation of your business, and it's one I'm facing myself. 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 the 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 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. 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.
-Dave
Dave Ramsey is America's trusted voice on money and business. He's authored four New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover and EntreLeadership. His newest book, written with his daughter Rachel Cruze, is titled Smart Money Smart Kids and is out now. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.