Buy, Rent or ?!
Back in 2012, my first shop had grown to a point where we were booked out over two weeks and our capacity was limited by our space. We fell into the trap of addressing only the complaint on the car and not doing a good inspection just so that we could get to the next car. It’s hard to say no when your customer wants to get their car in! But we were also letting them down by not inspecting the cars well enough. Many of you have been in that situation.
At the time, I rented and wanted so badly to buy the building that we were in. It took another eight years for me to buy that building (at that point for a different shop). Zoning for auto repair is very limited in my area and after exhausting what seemed like all options to buy or rent anything, anywhere, I had to get creative. I approached the current owner about doing an expansion to the existing space that I rented, partly paid for by me. Yes, I paid to expand a place I rented. I hated it at the time, but there really were no other options. Funny enough, we got that expansion done and literally maxed out the expansion on day 1. Now we were a little over a week booked out. If I had a nickel for every person who told me that was a good problem to have I would have begun throwing the nickels at them, it drove me crazy! It’s a special kind of frustration to not be able to serve all your customers and miss out on making money. If this is you right now, read on!
What that less that perfect expansion did do for me was to bring in more income. Income that I would very much need when an opportunity to buy came along at a price I never thought I could afford. In fact, it was another business owner in an even more limited area explaining to me how excited he was to buy land for what this building and land was being offered for that really got me thinking. Now granted, it needed a lot of work but I had learned to use numbers and data to make decisions at this point. I was still over a week out which I knew meant I could easily employ another full time A tech. With those numbers and projections including another tech, the new “expensive” purchase worked. I took that plunge and the rest is history.
A couple takeaways from my shop rent and ownership journey. There are certainly advantages to both renting and owning which I will review in a minute but my main answer to people who ask me which I prefer? Do the one that is available TODAY. Don’t wait. Secondly, use your data and how far out you’re booked to help decide how easy it will be to pay the overhead of a larger shop if that’s your situation. Now… let’s talk about those options.
Why buy? The number one reason for most is that you have a secondary investment and you have diversified your assets. It can be a hedge as I have seen shops take a tumble and the owners exit strategy was just to sell the real estate but hopefully that’s not the case for you and me! Interest rates are extremely low right now. The SBA has options for lower down payments and fixed loan options. Another benefit I took advantage of was getting a construction loan so that remodeling to the building plus parking lot, waiting room, new lifts, etc. were all neatly wrapped into my low interest monthly loan payment. There’s not much downside to purchasing other than the down payment. You have to be responsible enough to save that up and then ask yourself what that down payment money could have been spent on instead? Which leads into one of the main advantages that I hear shop owners talk about when they praise the merits of renting.
Why rent? The main reason I hear is that owners can use that down payment money to spend on marketing to grow their business faster or to more quickly open an additional location. With renting, the lease is everything. Long term options and pre-agreed on rent increases are critical, make sure to have a realtor and attorney involved. For someone like me who was kind of stuck on owning, if I had made a jump years earlier than I did (which I could have), that extra cash would have come much quicker. With that additional cash, my options to buy are increased or to even consider another location which I eventually did.
What I really want to stress here is that the goal is to move forward and grow. If the opportunity in front of you is a purchase, great! If the opportunity in front of you is renting, run the numbers and you may be surprised at the benefit in income and growth over your current situation. And if you’re really booked out, even my unconventional situation of expanding a rental can make sense. I’ve toured so many shops and let me tell you, there is a lot of creativity out there to get more space. Shops that have additions, shops than wind back and forth between combined buildings, and of course shops that have separate buildings. It’s a reality that zoning is more limited for our craft so we have to be creative to get the space we need but GET that space! And yeah, eight years later I was finally able to buy that first building. My first shop had long since moved on and grown but that property is now home to my second shop.
Do you have a good story about a creative solution to getting the space you needed to grow? I’d love to hear about it.