Before starting your car wash business, it’s important to consider whether owning or leasing the car wash property is better.
This will highly depend on your personal and financial circumstances and your short- and long-term goals. In this article, we will cover some factors that you should consider before deciding on your car wash business.
The Difference Between Owning and Leasing property
Simply put, owning property is when a buyer purchases real estate from a seller. This means the buyer will have full control and flexibility to use the land and all properties as they wish.
A leased property is when the owner or landlord signs an agreement to allow the tenant to occupy and control the property for a length of time. Leasing should not be confused with renting, though.
One key difference between leasing and renting is that the lessee will be responsible for any maintenance, repairs and insurance of the property. At the end of the lease term, the contract can be renegotiated.
Either the landlord will gain full control of the property or you can continue using the car wash.
Pros of Owning Property
One great advantage of owning property is that it offers flexibility. There is no need to negotiate for a lease, which can help you save time when setting up your business.
Owning your property can also offer a financial buffer. In unforeseen circumstances like COVID-19, your profits will be impacted. But since you won’t need to worry about paying rent, you will be able to focus on recovering your losses.
Also, owning a property offers greater possibilities for your car wash business. You can use your creativity and pick whichever business model suits you. That can be either an express car wash or a full-serve model.
This means you have full control over the property and can change your business when needed, like adding extra services or technology to stand out from competitors.
Another factor to remember is that, when owning the property from which your car wash operates, increases the value of your business.
Cons of Owning Property
One obvious pitfall of owning property is that you have to have some capital.
So, owning may be better for people in comfortable financial positions and who are willing to invest a large sum of money.
As a prospective buyer, you should also be flexible on property agreements and any possible restrictions on the land.
Pros of Leasing Property
If you are looking for a smaller investment or lack significant funds, leasing out a property might be the better option. Leasing might also be favorable to you as it allows you to access a car wash of a certain size that you might not be able to buy.
This factor alone may be of great value to you. If you have a fixed budget and want to access a car wash that can be high performing, then leasing the property might be the right choice.
On some occasions, leasing lets you earn your investment back quicker and might offer a higher ROI in the long term.
Leasing can also provide flexibility in the present and future. This is because you are tied to the property for as long as the lease term lasts, meaning you have the flexibility to change locations in the future.
Cons of Leasing Property
The most apparent disadvantage of leasing is that you won’t own the property. While leasing can be a great option, it does not add as much value to your business as owning the property.
You may also be unable to sublease, but this is dependent on your agreement, and you may have to go through an approval process.
Another disadvantage to consider is that every lease has its restrictions. This can be a tedious and long process. Once the agreement has been signed, you might have certain restrictions to operate your business. If you decide to make certain changes to the property in the future, you will have to get approval from the landlord.
Some leases need a personal guarantee from the business operator. This means, in case the business cannot repay a debt, the operator will have to repay using their personal assets.
Cost is another factor to consider. Leasing property will add rent to your monthly operating costs. This means your profit margins will likely be lower than if you owned the property. Also, since there would be less asset coverage, it could make financing for the rest of your business harder and come with less favorable terms.
The Best Option for You
Both options have their strengths and weaknesses. And your business can thrive with the correct strategy and resources. If you value owning assets, then the best option may be to opt for owning the property. This option can be great as a long-term investment since investors have the option to separate the assets into a real estate investment trust (REIT) in the future.
Whereas, if you’re looking for a smaller investment but with equal opportunity for growth, then you can go for a lease. In short, you can have a business with strong cash flows and revenue streams whether you opt for owning or leasing the property.
Ultimately, when deciding between the two options, it will highly depend on your personal circumstances and goals. You need to take the time to consider your short- and long-term goals and think about the resources you have. Your financing options will have a great impact on your decision and could be the only deciding factor.
