Franchise Investments: How to Weigh the Pros and Cons?

November 11, 2024

by a searcher in Houston, TX, USA

I'm evaluating a franchise investment where I lease or own a commercial space, build it out into individual suites, and then sublease them.

The current path is to lease a commercial property with significant initial build-out costs ($900K - $2M).

I’d appreciate insights on the option of owning a property for similar models.

How did you weigh the benefits and risks of leasing vs. owning for a franchise that requires substantial interior improvements?

Would you recommend any specific strategies to protect investment in property improvements?

Reply by a searcher
from Texas Tech University in Ann Arbor, MI, USA

If you lease, the key is the real estate negotiation. Make sure it is long term - 10yrs minimum with multiple options to renew. With that kind of initial build-out you want to make sure the real estate is locked in as long as feasible. You should negotiate a hefty TI (Tenant improvement) from the landlord in exchange for a long term lease...this will parlay your build-out cost.

Reply by a searcher
from University of Utah in Irvine, CA, USA

These have become quite popular over the past ten years (Sola Salon, etc). It works well and pretty consistent, but pretty low ROI. Just depends on what you want to do, but I like higher return deals.

+3 more replies.

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