Real Estate: Buying Vs Renting ??

[Doran]

I've been in the same spot for almost 8 years now.  I like the neighborhood and the building for the most part (even if it did partially collapse last year and take my revenue with it).  The landlord just sold and the new one wants to triple the rent.  I have about a year left on my lease. So the hunt begins for a new spot.  

Recently, a few buildings have come up in my purchasing budget.  I'm a solo esthetician and I like it that way.  I'm not looking to ever expand into employees or renters.  It just isn't my thing.  Neither property is big enough to do so anyway.  

For the most part, where I'm at renting a space similar to what I have is going to triple what I'm paying now.  Buying it will cost me less by a couple hundred dollars.  Not super significant.  Most rental properties here have CAMs NNN so I'm paying taxes, insurance, and maintenance anyway.    

My fear is the longer commitment of owning.  

Does anyone here own their real estate?  What have you found benefitted you over renting?  What are the cons?

[Tom]

This is a great question, @Doran — there’s a lot to weigh here. 🔮

To your point about the longer commitment of owning: In my neighborhood, there’s a long-standing restaurant where the owner also owned the building for decades. When he retired and sold the business last year, he kept the building and now leases it to the new restaurant owner. It’s been interesting to see how that stability helped the business and keep the restaurant in the community.

Where I live, in the South of Market neighborhood in San Francisco, the market can be unpredictable — boom-and-bust, largely driven by the tech economy. I’ve seen people who rushed to speculate on real estate get burned (both residential and commercial), especially as folks moved out of the city center during the pandemic. But those who took a long-term approach seemed to weather the challenges and build something lasting in the neighborhood. Doing a market study and gaining a solid understanding of your neighborhood and city’s economic trends can provide direction and clarity.

I’ve never owned commercial real estate myself and this example is from the food and beverage industry, so I can’t give advice, but your question about commitment resonates. There are always trade-offs, but thinking and planning long-term can sometimes make all the difference.

Neighborhood institutions like restaurants, corner shops, bars, salons, concert venues, and fitness/creative studios of all kinds hold a lot of value for me — they’re the heart of the community. I’d really like to hear more about what other business owners have experienced and their insights! 💛

[Push]

I don't own commercial real estate but, I do lease it. I am sure you have thought about this but, if you are only saving a couple hundred a month that may not be worth it when it comes to surprise repairs. I have had a handful of plumbing issues at my current space and had they been my responsibility finances would have been tight. Good luck to whichever way to decide to go!

[doc_choc]

Pros and cons for this are all around. Just make sure the pro's outweigh everything else.

If it was me I would be tempted to, if you haven't already, to go back to your new landlord and see if you can negotiate better terms, get the price down, add more space if there is more in the building ie perhaps there is space room he's willing to include, increasing your treatment capacity, get more for your money. Unless he has bigger, and unknown to you plans for the space you might find he's better off keeping a tenant with a trusted background of paying the bills and looking after his property. 

[MudFire_Dex]

Doran - ack - I feel this so hard - we have had such a time waffling on having a second space or not. NNN leases and paying property tax and insurance for a landlord also sucks. We spent $9K on a new water main supply line last year for our landlord to benefit from if we don't buy our building. I reroofed the building in 2022 in exchange for no rent escalation for 4 years, and we did $90K of renovations this year to fix damage from the water main break and improve the space. If I don't buy this building we did all of that work for someone else.

We are saving instead to buy our building in the next two years when our lease expires or if I can talk him into it before. We love the location and have scoured the city for other homes for our business that are as great as the one we have here and we've come up with disappointment. 

The way I've looked at is that property ownership is a continuation of the business in a different form if I decide to sell the business in retirement - I can sell the building too - or keep them as a package. Owning gives flexibility to the options available to transition out of the business or sell it. Tom's example above is very valid - perhaps you end up moving your business but are part of another growing small business in the way of being the landlord. Fundamentally I love this location and this building and definitely plan to own it.