Multi-Unit Real Estate & Site Selection Advice – Lease or Buy

Earlier this year, contributing writer Sara Wykes interviewed several multi-unit franchise operators about how they handle site selection and real estate challenges in today's market. She spoke with a number of operators who talked about finding that perfect franchise location, one that augments the odds of success and reduces the risk of failure.

Here are some insights culled from her interviews:

Lease or purchase?

Franchisees say the answer to that question is, predictably, "It depends." There are many advantages and disadvantages to either decision, says Jake Alleman, a Broken Egg Café and Chicken Salad Chick franchisee, "but I think it depends on the person or group investing in the business. Price is the obvious factor when trying to decide. We consider purchasing property if we believe it will add a positive addition to our overall portfolio. Most times, however, we end up leasing because we like having co-tenants to help drive traffic to the shopping center."

Allen Pinero, who is opening and operating Blink Fitness franchises in New York and New Jersey, is in a tight real estate market. "Leasing is the bigger opportunity since there isn't a ton of new development or even available real estate to do ground-up construction," he says."The real estate market has also pushed me out of purchasing a property because of high valuations and asking prices from landlords."

Jesse Keyser, whose Sport Clips and Oxi Fresh Carpet Cleaning franchises are scattered around areas of the Midwest where real estate values are more affordable, made a deliberate choice to lease. "I am 100 percent leased," he says, "although I have plans to move to percentage of owning."

He chose to invest his money toward a certain goal. "If you're buying property, like a strip center or a development, you're getting a 20-year return. With a lot of franchise concepts, you have no business being in it if you can't make it back in five years--I like 36 months. I can take that same dollar amount I might have spent to purchase and under a lease get it back in 36 months. There's more potential risk, but at end of 10 years I end up with higher worth than if I just had bought that location."