This is an extremely important decision and it can define how successful your business is going to be.
In my opinion the decision to buy or rent attributes to about 80% of your success. Even if you do everything else perfectly, your business will suffer if you make a bad decision with renting or buying a property.
Buying 🏠
Buying a property is a tempting idea, but I don’t recommend it unless you already have experience as a real estate investor/developer.
For most, you are beginning to build a business on a relatively new hospitality concept and it’s risky to sign a mortgage for 10-15-20 years without having some experience and numbers on running the space.
After operating your space for a while, you’ll have a much better idea of what exactly you want to buy and you’ll also have the numbers to show investors or banks.
Renting 💸
Unless you have your own property, renting should be your “go-to” option and there are endless possibilities. Here are some questions to consider:
- Can you rent with an option to buy, let’s say, in 2 years?
- Who is going to pay for the refurbishments? You or the landlord?
- Can you make a revenue share with the landlord instead of paying the rent every month?
- Perhaps you can combine a fixed monthly rental fee with a revenue share.
- Are you renting rooms in a larger property with an option to rent additional rooms in the same building later if the business is going well? Is it a promise of the landlord or will you have it written in the contract?
- What’s an ideal length for your rental contract? The motivation of most landlords is to rent a space longterm (5-10 years leases) but you’ll want to rent shorter at first as you test your concept and the demand.
Think like a landlord 🧠
This is the best advice I can give you if you want to make a good deal. Think like them, don't try to idealize the situation. Consider the following points:
- Landlords want maximum yields, with minimum risk and minimum work from their side. No matter what, always have this in mind.
- They don't care about your coliving concept. They might look friendly, even excited about what you do. But they don’t really care.
- They want a hassle-free tenant who pays on time. Show them that this is you.
- They own the asset and they believe that 90% of the success of your concept is because of the quality of their asset. You don't need try to convince them about the opposite.
- If you are going to build a successful business, they’ll want to have a piece of the pie too. But they are not your business partner. Remember point number one - they want minimum risk and minimum work.
Of course, I'm simplifying a bit here. There is no step-by-step guide to executing a fantastic real estate deal, but I’ve shared a few key points with you to get started. You will probably make some mistakes but there is a high chance that you can avoid some of them if you read carefully.
Try to have more leads for the properties you want to rent. Talk to many people, research, hire a good lawyer for the contract and don't fall in love with a property you want to rent. At least don't show it to the landlord.
This article is part of the guide where I'm sharing tips on starting a coliving business.
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