COMMERCIAL PROPERTY OWNERSHIP is a long-term goal for most small-biz operators, but eludes many. In a recent survey of INVISION Brain Squad members, just 44% reported owning their location, versus 56% who leased, though in their comments an overwhelming preference for ownership emerged. Below, we break down the generally accepted pros and cons of ownership; sample our Brain Squad members’ views and experiences; and then go deeper with profiles of four businesses—three that have taken the property plunge, transitioning from tenancy to acquisition, and one that has delayed that step for the time being.

A quick rundown of the conventional wisdom is always a good place to start. Taking into account current conditions, most experts see the advantages of buying as:

• Financing costs. Interest rates, though on a rising trend, are relatively low in historical terms. According to Charles Feitel, president of Health-Pro Realty Group, as a reason to purchase, “If the [financing] cost is approximately the same as leasing, it makes sense. If they’re close, buy. If not, don’t.”
• Predictable overheads. Adding to the above, mortgage rates are generally less volatile than leasing rates, making your costs going forward easier to gauge.
• Taxes. Operating a business out of a property you own usually qualifies you for significant tax breaks.
• Peace of mind. Optical and optometric businesses often use specialized equipment. If your landlord abruptly pulls the plug on your lease, your moving costs could be hefty.
• Business opportunity/retirement plan. If you’ve got room to spare, you could bring in tenants and become a landlord yourself.
• Investment returns. With luck, your property will increase in value, and ownership gives you equity for additional financing. From this perspective, “Equity in real estate is generally better than leasing,” says Feitel, adding that freestanding buildings tend to appreciate better than other types of structures.
• Freedom. Within the law, the property is yours to improve and otherwise do with as you please.

With the disadvantages being:

• Market vagaries. Property values sometimes decline and interest rates rise (affecting adjustable-rate mortgages).
• Less capital to play with. This is particularly important for young businesses that could be spending that money fitting out their exam lanes, building frame inventory or marketing to boost their patient base.
• Negligible savings. Feitel points out that as a rule of thumb, it’s “always better to own if it’s cost competitive.” That “if” is an important one, though. According to The Balance financial advice blog: “When leasing a business, the costs of property taxes, maintenance and repairs, security, parking, insurance, and more are mostly included in a lease agreement. If you purchase a property, these expenses become your responsibility.”
• Space. If you’re a growing business or in a booming community, it might be better to lease until you’re sure just how much room you’ll really need.
• You’re a landlord now! Any time spent on upkeep of the premises (or dealing with tenants) is time away from eyecare.

Our Brain Squad members had a lot to say about these advantages and disadvantages, and in their discussions with us they repeatedly returned to a number of key themes.

 

YOUR BUILDING
BECOMES YOUR BRAND

Having said that, Dr. Marc Ullman at Academy Vision in Pine Beach, NJ enjoys the freedom that ownership brings. “You can make your building as welcoming and attractive as you wish and let it reflect your own design ideas. We have a toned-down steampunk theme throughout the building including an artist that paints on the building seasonally and I consider the art and lawn maintenance the only advertising I do.” Dr. Blake Hutto, owner of Family Vision Care in Alma, GA, concurs: “To be able to have full control of your business from the parking lot to landscaping, interior design and medical setup, building our own space was important. It also allowed us to set the bar for new buildings in our city and elevate expectations for small business owners across the town.”

COSTS

“Leasing creates challenges that ownership would certainly eliminate,” says Nikki Griffin, owner of EyeStyles Optical and Boutique in St. Paul, MN. “Like those pesky CAM [common area maintenance] charge overages that seem to pop up at the end of the year in the thousands. Oopsies.” Cost surprises don’t vanish with ownership, though. Just ask Ullman at Academy Vision: “Everything is good about owning your own property until you find out that you have been paying sewer [fees] for 20 years, although you are on a septic system and then have to pay 12 grand to hook up to a township sewer when your septic becomes crappy, and the township only credits you for five years of payments.” Ouch.

BUILDING
MAINTENANCE

On the one hand, this might seem like an easy win for leasing; one less thing to worry about. It’s certainly a no-brainer for Physicians Optical Service in Jefferson City, MO: “All upkeep and maintenance is taken care of. When a problem comes up the building manager sees it’s addressed,” says owner Robert Lootens. On the other, not all landlords are so reliable. Steve Burek of Metro Eye in Milwaukee, WI, sums this problem up succinctly: “The good: Don’t have to worry about maintaining the property. The bad: Have to worry about someone else maintaining the property.”

TIMING AND
BUSINESS MATURITY

Another factor is where your business is in its life cycle. “I’ve only been in business for a year so it made sense to lease and test the waters in the town I want to grow in,” says Kyla Skinner, owner of Specs by Kyla in Atascadero, CA. It’s a strategy that worked for Spring Hill Eyecare in Spring Hill, TN. Says office manager Melanie Jenkins: “Our owner/OD started cold out of optometry school. Within two years the practice had outgrown the space that was being leased. He expanded in the current building, doubling the space. Within two years again, we were out of space. The decision to build and own was made to accommodate growth and to provide a financial investment in property and the building that was constructed.”

LOCATION

A definite check in the “win” column for leasing is that it can allow you to operate in a killer spot where buying would be prohibitive (in other words, prime real estate areas in most major cities). It’s something owner Dr. Jason Klepfisz factored in when opening Urban Optics in downtown Phoenix, AZ. “We are at the base of a 21-story building with our glass storefront wrapping around a prime corner. The location is slightly more than an office complex but the difference in cost more than pays for itself in advertising.” And keep in mind that buying opportunities aren’t always limited to what’s currently on the market. “We currently lease but have a good relationship with the owner, who is willing to sell when the time comes,” says William Chancellor, owner of Best Chance Optical in Forsyth, GA. (On the topic of location and property markets in general, a word of caution from Health-Pro Realty president Feitel: Most small-business owners, he says, “Don’t know the market. Work with a pro in your market to ensure you get a ‘market deal.’”

INVESTMENT REWARDS AND
OTHER BUSINESS OPPORTUNITIES

Ownership can also lead in non-optical directions. McCulley Optix Gallery in Fargo, ND, is about to move into a 50%-owned building, and office manager Jenna Gilbertson expects the main benefit to be “revenue stream from other lessees.” In Charlotte, NC, meanwhile, the owners of F.Y. Eye Care are banking on leasing out their building or having another doctor come in to practice when they retire, according to office manager Emily Choate.

Having set the scene with a look at the pros, cons and key themes of owning and leasing a business property, below we go a bit deeper with profiles of four eyecare businesses who shared with us their experiences in the world of commercial real estate.

 

Geauga VisionGroup
Middlefield, OH

After 12 years of renting its primary location, Geauga Vision Group was running out of room and made the decision to purchase a larger space in 2017. Recalls owner John Bruening, “We were rapidly running out of the [1,200-sq. ft] space we were in, and it was keeping us from keeping up with the growth of the practice.”

Geauga Vision ultimately settled on what had once been a bank just across the street. “It happened to be where we did our banking, so I kept a good relationship with the manager and tellers. When the bank was acquired by a larger institution, I had the manager put me in touch with the real estate division of the company, and we were able to make a deal with them before it was ever listed on the market.”

While they weren’t moving far, they still had to get the word out, he recalls. “People are creatures of habit, and sometimes, even moving only a block away can really affect their ability to find you. Even though we moved just over 75 yards away, we still had to do a lot of advertising to get our patient base familiar with where we were.”

The new site was built out with a dispensary, four exam lanes, and a finishing lab that supports all Geauga’s offices. At first, Bruening rented one of the exam lanes out to an audiologist one day per week, but then got too busy and needed all the lanes, every day. He adds: “Most of the patients don’t have a clue, but we also have a fully staffed call center in the back of the building where a staff of three does remote scheduling and invoicing for some of our other offices.”

The decision to buy has more than paid off. “I am really pleased with the way everything worked out. The new building has allowed us to offer more products and services than we had ever thought possible,” says Bruening, who also points to the many tax advantages of owning your own building, which include being able to depreciate deductions, writing off maintenance expenses, building equity, and being able to write off the mortgage.

As an investment, Bruening is very satisfied with the acquisition of the building, which has greatly increased in value in the past half decade. He has not made any specific plans beyond the expected life of the practice but designed the location so that it could easily be repurposed into an urgent care, legal, or medical practice.

When it comes to making the crucial leap from renting to owning, “Timing is everything,” says Bruening, conceding that for younger practices, especially, renting can make sense, at least for a while. “When starting a practice, cash flow is the key to whether you succeed or fail. Renting is a great way to test the waters, as you don’t have to carry the burden of all the things that come with ownership.”

And ownership is not all smooth sailing. “The challenges you face when owning your own commercial property are similar to being a homeowner,” he says. “Unexpected repairs, such as when the drain backed up, several times, replacing a $20,000 air conditioning unit, and repairing not only a driveway but a parking lot as well. You also have general maintenance such as landscaping, snow plowing, interior and exterior touch-ups, and security systems.”

Before buying, do an in-depth analysis of your business, and the area in which it is located, he advises. Look to see how your demographics are trending, and if the growth is sustainable, or if it has peaked or is going in the other direction. “Make sure the area you are investing in will keep pace with the expectations for your practice.”
He also urges prospective buyers to “Get feedback from your staff to see what their thoughts are, as this will affect them on a daily basis as much as it will you. If you are building or remodeling, make them a part of the process, as they will have a lot of great ideas, and be able to help out immensely with the details.”

PRO TIP: Develop a relationship with the town, village, or city administrations. “There are often grants and low-cost loans available to area businesses, especially those who own buildings,” says Bruening. “They are also often aware of what buildings may be coming up for sale before they come on the market.”

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Vision Center South
Dothan, AL

For Vision Center South, buying rather than leasing a property was a no-brainer for their main office, located on a health campus chosen for proximity to other providers and easy access for patients. “For our company and our long-term goals, this was an easy decision to make. We knew that this was necessary for the completion of our rebranding,” says optical merchandising manager Colby Spivey.

If she could summarize the advantages of ownership in a word, it would be “autonomy”—something she sees as especially important in the optical industry. It’s about “being able to add or remove items that are required for our ever-changing needs as a combination medical and retail business. Do we want to purchase a new piece of diagnostic equipment or a new display feature? Great! Let’s do some remodeling to create the space and better aid our patients.” If you are renting or leasing, she says, there is a chance you will get told no and that your business — and patients — may suffer.

With ownership, of course, comes responsibility. This may sound simple or obvious, but as Spivey points out, it requires a whole new mindset, not just for the owner but for managers and the whole team: You must fix it if it’s broken, you must make it right if something goes wrong, you must clean it up if disaster strikes, etc. If you are leasing or renting property or are simply an employee, these items would not necessarily fall in your lap; they could be tasked to another department or simply shifted back to the owner for them to sort out. “Recently in our new buildout, we had a very fancy coffee maker decide to implode. Not only did it make a large mess of the breakroom, but it ended up going down the wall and began leaking into the hallway on the floor beneath. This is something that normally would be taken care of by the landlord. However, now that the landlord is us, we had to take quick action and begin the fix — all during business hours while patients maneuvered around the mess.”

Spivey agrees that where a business is in its life cycle is a huge factor. “There’s a good reason why not everyone runs straight out into the world and quickly purchases a house as soon as they can. Maturing as a business to solidify your client base is a great recommendation. Find out your true needs and wants before sinking yourself into ownership.”

PRO TIP: “Always weigh out your options, ask around before you settle on anything, and make sure you have the right team to help your business succeed,” advises Spivey.

Eyetopia Eyecare
Littleton, CO

While purchasing a property is Dr. Dierdre Fogle’s ultimate goal for Eyetopia Eyecare, she is currently leasing, which seemed the most realistic option at the time of her cold open. While she did look into buying, she ultimately decided it was a move best delayed. “When we were working on purchasing a space for the business, the market for real estate was very competitive. So, we are waiting for our lease to come to an end in seven years and will look again.”

While she describes the real estate market conditions in Littleton as “volatile,” she believes that “Financially, if you can purchase the property, it is almost always lucrative,” pointing to the tax breaks that apply to property where you do business, not to mention the potential to earn equity. All of which stacks up favorably compared to leasing, where “the expense normally increases yearly and 10 years later you have nothing to show for your efforts.” Furthermore, owning the property where your company is housed is normally advantageous even after one retires, she says. “You can continue to own the property where the business is conducted and can make money as the landlord for the next tenant or owner of the business.”

“For many lessees, quality of life as a tenant largely comes down to the attitude of the property owner. In this regard, Fogle feels she’s been lucky. “Our landlord is pretty great! They are responsive to any facility issues that come up and are fairly hands off. We are able to pretty much decorate inside how we like.” One downside is that Eyetopia Eyecare can’t put display items in the windows, or change the window treatments, because their contract stipulates that the exterior of the building has to look the same from every suite.

Finding her current location was relatively straightforward: She asked her realtor to show her locations that were within three miles of where she was previously practicing, and there were only three viable options.

Fogle sees it as essential to work with a commercial realtor to ensure you have the best possible lease deal and good representation. Often, she points out, the landlord will have to pay the realtor’s fee as part of the contract, so it doesn’t cost you anything.

PRO TIP: “Our original space was very difficult to find. We worked with a geographics information specialist to determine the best area that was not already saturated with eyecare,” says Fogle.

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Optimal Eye Care
Lewis Center, OH

Like many of the ECPs interviewed for this article, Dr. Lori Engler, owner of Optimal Eye Care in Lewis Center, OH, is a firm believer in the merits of commercial property ownership, but admits it wasn’t necessarily the easiest decision to make at the time. Her experience of becoming an owner is a lesson in the importance of patience and having a long-term strategy. “I had a year left on my lease” in a shopping center anchored by a grocery store chain, she recalls. “I knew my practice needed more space, but [it] was not in the financial position yet where it was a slam dunk.”

When lots in front of the shopping center with great visibility came up for sale, “Moving across the parking lot in front of my current location was a perfect scenario. Purchasing land to build my own building provided a better location with prime visibility, tenant income, the space I needed and a long-term retirement plan,” she says.

Engler gave notice that she would go month-to-month on her lease once the original term expired. It took two years from the moment she made the decision to build until the construction process was completed, by which point the practice was ready for the level of growth needed to support the increased expenses. “I am thankful that I had the foresight to move forward even though everything did not look perfect on paper when the process began.”

Looking back, she believes the key factors in successfully transitioning from leasing to ownership were her strong patient base, proven financial record, great support staff and experience as a practice owner. “My practice was seven years old before I moved into my own building and I would not do anything different” in terms of the timeline, she says.

To simplify the move and eliminate the risk of losing patients, she chose to build in front of her existing location, using a broker to help with the purchase of land. “The availability of land so close to my current office definitely helped sway my decision to buy,” she adds.

The process of acquisition was not trouble free, however. While she had a longstanding relationship with her local bank, this type of transaction was not their forte; they moved so slowly it was causing problems with the seller. The broker advised she switch to another bank, which moved at “lightning speed,” Engler recalls. “Choosing a bank that is well-versed in this type of project is really important.” There were some construction headaches, too, as the builder ended up introducing a bunch of unwarranted change orders.

Owning a business property has been advantageous in a lot of ways, she says, from the financial and tax benefits, to becoming more attractive to the bank as she looks at purchasing additional property. The downsides, according to Engler, are similar to owning a practice. “The problems are all my problems. We have had unexpected issues like flooding — on our first day open! — several roof leaks and broken/unusable doors. I’ve learned to just deal with the problem and move on, whatever it may be.”

Engler says buying commercial property was “the best financial decision I have ever made. I plan to keep the property as rental income even when I no longer own my practice.” She already has two tenants — a sandwich shop and a hair salon.

Looking back, if she had the experience to do over again, she would hire an experienced construction project manager to oversee the construction process and act as her advocate. Other than that, her advice to other ECPs is to “surround yourself with a strong team” and “pay for the expertise of a good attorney, CPA and broker.”

PRO TIP: Be aware of legal issues regarding the land being acquired. “The purchase itself was easy, however, the seller required the buyer to be in charge of the land replat. That was a nightmare! I would never agree to that again,” Engler says. “The lot was not divided into individual plots and I had to deal with the hassle of hiring an engineering firm and complying with county regulations to get the plat subdivided. This was a huge hold up in the construction timeline and I could not close on my loan until it was complete.”

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