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The News and Information Source for Franchising

November/December 2008

By Chris Hurn

Despite a bleak outlook, the sky isnt falling and all is not lost. There are still ways to grow wealth, even in softer economic times, and one of the quickest, easiest and safest ways is to own commercial property.

ranklin D. Roosevelt once said that when done correctly, real estate is about the safest investment in the world. It makes perfect sense to own the real estate our businesses occupy. The following are seven reasons why franchisees, when possible, should consider owning their commercial property:

Street does over the next several months.

3. You can control/fix your real estate expenses.

Theres no need to put up with rent escalators year after year. When you purchase your property, be sure to fix your interest rate for as long as possible. This way, youll know exactly what youll pay month-to-month and year-to-year. Youll have much more freedom to better allocate resources and grow your business when you know one of your largest expenses is fixed.

1. You can pay yourself, rather than make your landlord wealthy.
If youre renting now, your rent payments are fattening your landlords wallet when they could be benefiting you.

2. You will build equity and grow your asset.

Over the past 50 years, commercial property as an asset class has appreciated an average of 3.5 percent per year. This is a long-term investment that will pay off substantially down the road, regardless of what Wall

4. You can reduce real estate expenses by up to 40 percent.

Many of the business owners we work with are able to lower their monthly real estate expenses simply by owning instead of renting, and doing it with the right financing (more on that to come). If you take into account the average property appreciation and your fixed costs versus (continued...)

an average yearly rental increase of 2.5 percent, owning your commercial property over just a 10-year time period is a much smarter financial decision than renting. And we havent even mentioned the tax advantages and legal income-sheltering this provides.

If you own your commercial property, you can become the landlord, growing rich while you sleep, even after youve closed or sold your business. This passive income can be the basis of a carefree retirement.

5. Youll stop throwing away your money on rent.

As with No. 2 above, your real estate expenses could be working to build you equity. But if youre renting instead of owning, youre effectively throwing money away and missing out on a huge opportunity to create wealth for your growing franchise.

The franchisors perspective

If franchisees are able to enjoy all of these benefits by owning instead of renting their property, it stands to reason franchisors should encourage franchisees to own whenever possible. Of course, this wont apply to all concepts, but many restaurants, hotels, day care facilities and other brands that can occupy free-standing buildings will see a boost from this. As franchisees increase their net worth and grow their businesses, theyll have the confidence to open more units faster than they could if they merely rented their commercial property.

Commercial Loan, otherwise known as the SBA 504. Its designed to preserve more capital (equity requirements are a third to half as much as traditional bank loans) and have less impact on cash flow (with longer terms and below-market, fixed interest rates). Many business owners unwisely still view the SBA as a last resort for financing, but smart franchisees will always promptly consider at the 504 loan, because it really is the Smart Choice for smaller franchise operators. It can make a huge difference in the life of your franchise. |ft| Chris Hurn is the president of Mercantile Commercial Capital. MCC specializes in providing SBA-guaranteed 504 loans to franchise companies. You can reach him at 407-786-5040, info@mercantilecc.com or by visiting www.TheSmartChoiceLoan.com.

6. You can fulfill a dream.

The first step toward creating wealth and financial freedom comes when you decide to own your home. Then, you decide to open a franchise and be your own boss rather than work for somebody else. The next step - what I call the newest American Dream - is to own your commercial property. Author James Champy, in The Arc of Ambition, wrote that Michael Dell admitted he never dreamed of a future in technology when he was young. Instead, he received inspiration from seeing many new buildings on his way to school, and in front of each were flags flying. He confessed that his youthful ambition was to own such a building with a flagpole, and when asked if hed done that, Dell answered, Yes, and Ive got three flagpoles.

Is now the right time?

Despite news reports that were headed for a terrible recession, commercial property is still a great investment. Now may be the best time in a long time to buy commercial property. Franchisees have a once-in-a-generation chance to make a smart investment that will benefit their businesses, create wealth and pave their path toward a carefree retirement.

Making the Smart choice

I would be remiss if I didnt include some sort of application - the how for all this. Again, its not impossible for franchisees to get financing for commercial property. One of the best tools available to franchisees is the SmartChoice

7. You will own your real estate even after you sell your business.