Back in July, I re-posted an article by Jay Goltz that appeared on the New York Times‘ website. He was writing on the possibility of a double-dip recession and told of things he had been doing to both stay optimistic and to shore up his position. One of the things he did was buy a new building. It’s a little counterintuitive, but he had good reasons for doing so: to reduce his overhead expense and give him more room for efficiency and growth.
It turns out someone left a comment on his blog asking him to explain the thought process behind his decision to purchase his building. Jay obliged by posting another article earlier this month, which I’ve re-posted below. Like the previous one, he makes some great points that you shouldn’t miss.
As you read Jay’s article below, you may realize that you or someone you know should also consider expanding into a new building or buying one for the first time. If you find yourself in that situation, call me right away at 1-866-622-4504 begin_of_the_skype_highlighting 1-866-622-4504 end_of_the_skype_highlighting or email me at ChrisHurn@MercantileCC.com. It’s never too early to get the right Lending Partner on board, and you can be Pre-Approved with us in as little as 24 hours (be sure to ask how when you call or email).
And now, for your reading enjoyment, here’s Jay’s latest article:
August 4, 2010
Should I Rent or Buy?
By Jay Goltz
In a recent post, I mentioned that as part of my plans to lower my costs, I had bought a building. A commenter named Kris asked a good question: Why did I buy instead of rent? There are numerous reasons, many of which do not necessarily apply to every business.
What I bought is an 85,000-square-foot industrial building with 23-foot ceilings and three loading docks. With this economy and the shrinking of the manufacturing base in Chicago, there are not many companies looking for a building like this. From what I am told by people in real estate, there are still a good amount of companies looking for 5,000-square-foot or 10,000-square-foot spaces, but it is especially hard to rent or sell a building with more than 50,000 square feet. The 36,000-square-foot space I moved out of, for example, has been divided and is now being rented by five different companies.
Even if a building like the one I bought had been available for rent, I wouldn’t have considered it. The costs of moving are substantial. Adding up electricity, phone, computer, security, painting, racking, and the actual moving, there are hundreds of thousands of dollars invested in the new space. I don’t want to move again in five, 10, or even 15 years. It is not just about stability; it is about control. I can do whatever I want to the building, including putting in a new sidewalk, replacing doors, or upgrading the heating system with the knowledge that it is my building I am investing in. Granted, it is also my money that is being spent but I don’t have to argue, beg or threaten to get what I want. For me, that is enough reason to buy, but there is more.
The numbers work. Although my costs to fix up the building ran significantly over budget (they usually do), my operating costs have dropped significantly. The fact is, when you spread those costs over many years, the cost per square foot per year is pretty small. Plus, I have a tenant who has taken about 25,000 feet. Obviously, you do have to have the cash or borrowing ability to finance the purchase and the improvements. But with the savings on my monthly payment and the real estate taxes, it’s costing me less than half of what I was paying for my old space.
And now I have a much better building with higher ceilings and parking. There should also be some significant income-tax savings from depreciation (of course, you have to be making money to get the tax savings). And then there is the long-term view. I believe the building will appreciate over the years, but even if it doesn’t, I will save enough money that it won’t matter.
This has used up a good amount of cash. Some companies would rather use their cash to expand by opening new locations or investing in marketing or technology. My overall business strategy has changed over the years. I used to focus on growth. Now I focus on the bottom line and being happy; reducing stress is one of the things that makes me happy.
I have decided that I want to have as much control over my destiny as possible, and I want to answer to as few people as necessary (besides my thousands of customers). With that in mind, I have concluded that great stress can come from three relationships: your landlord, your partner (or investor) and your banker. I’ve never had a partner and now that I’ve eliminated my landlord, I am very close to being done with all three.
No offense to my banker (whom I like!) but my plan is to be out of my credit line which will leave me on my own to win or lose, to make money or lose money. No one to ask permission. Call it life without a parole officer.
Jay Goltz owns five small businesses in Chicago.
As Jay said, not all of his reasons for purchasing will apply to every business, but several of them apply to EVERY business. Also, be thinking about the benefits of the SmartChoice Commercial Loan – – as little as 10% down; longer terms; and the 4.93% interest rate (fixed for 20 years) that was recently announced. This isn’t only a no-brainer – – it’s a good-brainer! I’m not sure if Jay got an SBA 504 (aka the SmartChoice Commercial Loan), but maybe I’ll ask him for us soon.
Again, call me at 1-866-622-4504 or email me at ChrisHurn@MercantileCC.com today so you we can get you started with your project.
Dedicated to Your Continued Success,
P.S. Don’t forget to leave a comment below. You may even have question or two about something I or Jay said above. If that’s the case, ask your question below and I’ll get you an answer ASAP.
P.P.S. We’re on Facebook and Twitter too, so please click below to follow our goings on there. That’s where you’ll read the VERY latest from us, often daily and often hilarious: www.facebook.com/MercantileCC and www.twitter.com/504Experts. We all need a good laugh every once in a while. 🙂