Jim Correll, director Fab Lab ICC at Independence Community College, Independence Kansas 

It’s happened several times over the last few years or so. Someone comes along with the idea or even a dream of having a downtown retail business and think the first step is to buy a building. A few have even been in the middle of a building purchase contract when they first come in to talk about their business idea. 

Society over the years has given us a message that paying rent is a waste of money. Ever heard or read an advertisement that says something like “Stop wasting your money on rent when you could own.”? We’re conditioned to think that property ownership is always the best route. With very few exceptions new and aspiring retail business owners are better off renting retail space rather than taking on the headaches of building ownership in addition to the challenges of starting a new retail business. 

No matter how much or what kind of planning we do there’s really no way to tell if a business idea is a good one until you actually enter the market to see if customers want your product. In a retail business, this means figuring out how to start the business with as small a risk as possible. Owning the building adds a huge risk to entering the market. If the retail store doesn’t work, it may mean you have the wrong product or service for the current market. Sometimes the product or service might be good, but the location is not right. Ever heard the adage “The most important thing is location, location, location.”? In retail you have the get the product mix and location right to be successful. It is not uncommon for new businesses to figure out that either or both their product mix or location need tweaking. If your location ends up being wrong and you own the building, it is like a hundred concrete blocks around your neck, greatly hindering your ability to be agile. 

Brian Hight and Ryan McDiarmid started what is now Magnolia Scents by Design in 2008 in the middle of that recession. At the time, they were not in a position to consider building ownership. Although ever-positive about the prospect of the business, they would have chosen not to own even if it were possible. Magnolia now has two locations; downtown Independence KS and Greenville SC. They rent both locations and would not have it any other way. Brian says “Only if aspiring retail business owners have plenty of cash should they consider buying a building.” Aspiring retail business owners almost never have plenty of cash.  

Successful building owners are happy to work with their tenants do whatever is needed to prepare their property for a new business. This is usually in exchange for a lease commitment of a few years with an “escape clause” in the event the business doesn’t work and has to close. The lease should never be verbal or month to month. The lease should be crafted in a way to benefit both owner and tenant.  

Building ownership should be treated as a real estate venture entirely separate from the retail establishment even if the retailer and building owner are the same person. The best advice is to only buy a building if you want to be in the commercial real estate business, complete with the challenges of maintenance, upkeep and finding good tenants with successful businesses to rent your space.   

Jim Correll is the director of Fab Lab ICC at the Center for Innovation and Entrepreneurship on the campus of Independence Community College. He can be reached at (620) 252-5349 or by email at  jcorrell@indycc.edu.