I am a young entrepreneur that is working to get both real estate wealth and I also have an awesome dream of owning my own coffee shop. Well I am looking to open in 2008 but I haven’t decided on whether or not to lease or buy a location.
Here are a few ideas I have considered. I am wondering if some more of the more experienced investors could give me a an idea of what sounds better or if there is something I haven’t considered.
#1 Lease retail space- the usual
#2 Purchase retail Space
#3 Purchase Retail Shopping strip and place my coffee shop there
I know a guy in Dallas who has a chain of Mexican restaurants. Anyway he leased in the beginning, and then purchased “other” locations after he expanded and knew for certain his business concept would work out. Also I know another guy who owns a convenience store, and he was so successful, he wound up buying the entire strip mall that he was previously just renting one store in. Now he makes money from his store + his strip mall (other leases).
In your case, say you start out with a one-year lease and your monthly lease payment is $1000. If your business does not make enough money your rental obligation (DEBT) will be just $12,000. If you purchase a $100,000 building, your DEBT is $100,000 assuming you put nothing down (which in all reality is hard when you talk about commercial property).
Either way, if your business fails OR does not make enough money to satisify your needs, would you rather be $12k in debt or $100k in debt? I WOULD RECOMMEND LEASING TO START.
Or if you could find a lease w/ an option to buy scenario, that would be good, but those situations are rare.
I’m really hoping you find success with your coffee shop. If you’re in the right area, and are a long ways from a Starbucks OR have a niche different than Starbucks, you might do really well. Heck, the founder of Earthlink got his start by opening a coffee shop when he was barely 20 years old. Sky Dayton is his name.
Start out leasing, if something goes wrong with the coffee shop and the building at the same time you will be in serious cash crunch. You don’t want to run both aground at the same time when doing one or the other would allow you to make it through tough times.