Oftentimes a new company starting up doesn’t have the money to purchase property, especially in high-dollar areas. But after nine years in business, Kelly Nemitz, owner of The Hair Specialists in Hudson, Ohio, asked herself, “Why am I leasing?” She realized how expensive it was when she added up the money spent on monthly lease payments. That’s when she decided to look for a building to buy and an opportunity to be her own landlord.
Stacey Handel, owner of Garde Bien Spa Salon in Knoxville, Tennessee, had a similar experience. She leased for 12 years when she first opened. “When I did the math, I saw that I had no equity for that 12 years of business.” She moved to her permanent location in 2011. This year she was able to purchase the adjacent space to renovate and expand.
For these two business owners, owning property is not only the best choice for their business but also a great investment toward their future.
With more than 40 years of experience, Handel says she has watched business ebb and flow. “I would have never guessed I’d be closing my doors because of a global illness.” However, the busy bus that started rolling after those shutdowns during the pandemic has not stopped. One thing is for sure, with all the changes from 2020 she says she’s learned to prepare for the unknown.
“I can’t lie. When the adjacent space became available during a pandemic it was frightening and exciting! Prior to the pandemic, I had several conversations with the business owner about his future and retirement. The pandemic turmoil gripped us all in the realization of an uncertain future, and he was even more motivated to sell,” Handel said. “We are on our way to having a record year and expansion very much on track.”
After being in business for 11 years, Nemitz said she was amazed as they survived a COVID-19 shutdown and still had our clients and employees. They had also survived the stock market crash in 2008. She realized that no matter what happens, people will still have needs to meet. Entrepreneurism is in her blood, she said, and she is aggressive when it comes to business decisions.
One reason to buy property is the need for space. Nemitz said private rooms are constantly overbooked because of the specialized services they provide to men, women and children. The need for more space made purchasing property the next logical decision.
While Nemitz began looking for property in 2020, she closed in April on a location that she sees as an endless opportunity for growth. “In my heart and in my gut, I know that this is what we needed.” She is in the process of renovating and making the space her own.
Handel agreed that privacy suites are the backbone of any hair loss specialty business. She said it became clear that the solution was to expand in their current location because she already had a feel for the future of the development of the area. “I did the research on the area, did the work to research the markets, and confirmed with my bankers, commercial real estate agents and CPA that this is a good choice. I have a good feeling about it,” she said.
Owning a business property is a commitment to build equity. Both Nemitz and Handel encourage business owners to consider their long-term plans and whether they plan to stay in an area. Handel said businesses shouldn’t purchase if they plan to leave in three or four years. She sees purchasing real estate as an opportunity for consistent growth and stability.
When deciding whether to purchase property, Nemitz said for her it all comes down to the numbers. “I would always advise someone to ask ‘Does it make sense?’ Then, run the financial numbers.” Here are some other questions to ask, she said.
- Can I afford the down payment?
- Can I afford the mortgage payment?
- Do I have enough money for the taxes?
- Would I have enough savings for unexpected repairs?
- Am I willing to manage a facility?
“Once you run the numbers, you will know what you have. That will lead the way,” she said.
Handel said her main checklist was to have the cash flow to make the down payment and the cash to put toward furnishings. Additional factors to consider, she said, are how long the owners have been in business, how they have built their brand, and what ability they have to bring in revenue.
Undeniably, ownership will take more energy when it comes to maintenance and repairs. It would be easier to call a landlord, Nemitz said, but she’s willing to put in the work.
Both leasing and owning have tax breaks, Handel said. The depreciation of the building is an added bonus on the ownership side.
One of the best reasons to own property is connected to a robust exit strategy. Both Nemitz and Handel agree that having a building to sell or lease provides an opportunity to invest in themselves and their future. Buying a building and paying the mortgage was attractive, Nemitz said. When retirement comes, they will have built equity in the property that can be sold or leased depending on what benefits them most.
Leasing space is a great place to start
If attracting a better clientele and having a more professional appearance is the goal, Randy Clark says that is best accomplished by leasing space in one of the high-rise buildings that etches the city skyline of Dallas.
The decision to lease space can be driven by a number of factors – from the availability of cash flow to the best amount of space and location.
As the owner and stylist at Randy Clark & Associates, Clark has leased space for his business for 40 years in high-rise buildings that are more impressive than strip malls or business centers, he said.
Clark built his hair loss business by creating “a systemic, non-surgical approach to hair loss that naturally, painlessly blends matching human hair with the clients’ own hair.” The average business owner doesn’t have a large stash of cash to buy a property upfront. They’d rather invest most of the money, in the beginning, to get clients in the door, he said.
“Leasing is a great option for a new company starting up if the business owner doesn’t have the funds to purchase property, especially in high-dollar areas,” said Nemitz, who is a master hair loss specialist, said. While she owns her building, she started leasing in her initial practice with The Hair Specialist in Hudson Ohio. Because she was interested in a specific location in a certain town, leasing was her only option as nothing was available for sale.
Handel agrees that leasing requires a smaller investment to get a business started. It can help with cash flow when a business is growing but the future is uncertain.
Clark only sees leasing space as a positive with the greatest benefit, he said, being the ability to write off 100% of the lease on his taxes.
While buying property is a good option once a business is established, Clark is happy in his leased space. With 3,500 square feet of space, Clark’s business features six private styling rooms, a waiting area, a laundry room and a kitchen. He employs three to four stylists, which is slightly less than the pre-pandemic days.
- Building equity as an investment
- Fixed mortgage payments
- Tax breaks
- Control of space design
- Flexibility of construction
- Rental potential
- Appreciation for future resale
- Upfront capital, down payment, appraisal fees, etc.
- Construction remodeling costs
- Short-term relocation flexibility
- Adjacent undesirable businesses
- Increased liability
- Responsible for maintenance
- Future expansion may be limited
By Roxanne Converse-Whiting, AHLC Contributor