Why Owning Property Isn't Always The Smart Move For Business Owners, According To Dave Ramsey

As a business owner, you might be tempted to purchase property for your business operations. After all, real estate is often seen as a solid investment, and having control over your space can be appealing. However, financial expert dave Ramsey warns that buying property for your business isn't always the best move. In a recent conversation on the "EntreLeadership" podcast, Ramsey explained why leasing may be the smarter option, especially for growing businesses. Let's dive into the reasons why.

1. Flexibility and Growth: Leasing allows for more flexibility and adaptability as your business grows. Owning property can sometimes dictate business decisions, which may not always align with the company's growth trajectory. For instance, Mike from Dallas, who owns a commercial Christmas décor business, might outgrow his current warehouse space if he buys it. Leasing allows for easier expansion or relocation as needed.
2. Financial Commitment: Ramsey advises against making a significant financial commitment in real estate during the initial few years of starting a business. Instead, he suggests leasing for the first three to five years to focus on generating revenue and managing growth wisely. This approach helps maintain financial stability and prevents the business from being burdened by a large, long-term debt.
3. Debt-free Principle: Ramsey emphasizes the importance of being debt-free before considering buying property. This principle applies to both personal and business finances. By being debt-free, business owners can make more informed decisions and avoid the risk of financial strain that comes with debt.
4. Long-term Vision: Business owners should have a clear understanding of their long-term goals and needs before purchasing property. Ramsey suggests waiting until the business has a proven track record of success and a solid idea of its future building needs. This approach helps ensure that the property purchase aligns with the business's long-term vision and growth plans.
5. Real Estate as a Distraction: Ramsey warns that focusing too much on real estate can distract from the core business operations. He advises business owners to prioritize generating revenue and managing growth over real estate investments, especially during the early stages of the business.

Leasing with an option to buy can also be a smart move for business owners. This approach allows businesses to maintain flexibility while still having the opportunity to purchase the property if it makes sense in the future. However, Ramsey warns that finding a property with an option to buy can be challenging, especially with real estate investment trusts owning many properties. Nevertheless, persistence can pay off, as Ramsey once leased a building with an option to purchase and eventually bought it after gathering the necessary funds.

In conclusion, business owners should consider several factors when deciding between leasing and buying property for their business. Prioritizing flexibility, financial commitment, debt-free principles, long-term vision, and avoiding real estate as a distraction can help business owners make a more informed decision. Leasing with an option to buy can also be a smart move, allowing businesses to maintain flexibility while still having the opportunity to purchase the property in the future. By following Dave Ramsey's advice, business owners can make better decisions about real estate investments and focus on growing their core business operations.