The Brutal Truth About Shop Space

Today I'm giving my controversial opinion on getting a shop space for your home service business. The very first thing I always like to think about is are you in an industry where you actually don't need your trucks and equipment to be parked in one geographical area? The reason I say this is because if your crew can take their vehicle home, you could potentially be saving thousands of dollars every single month simply by not having to rent a shop space. The other question is, does this shop space need to have an office? As soon as you have any sort of shop space that requires an in house office person, you're usually going to double or triple the amount of rent that you're going to be paying. The difference is, are you getting parking? Are you getting an office? Parking can be very cheap. Even if you have 10, 15 trucks, you might pay $1,000, $2,000 for just an area to park your trucks, have a couple of storage containers, be super ultra lean. Also had businesses where I've put $100,000 of tenant improvements into my rent and got a shop space. I brought in utilities, dug a trench so I could get ethernet in there. Expenses works ext. Expensive. I want to talk about when do you get a office space? And at the end I want to share my hack for doing this in the most profitable and efficient way for your business. Most of us start in our own garage and if you can't because you live in an HOA or some sort of gated community, you might do like a storage facility and then have a enclosed trailer. This is what actually I did when I first started Augusta Long Hair. I had a 6x12 trailer that was enclosed. I would lock up the front, the back gate and the side gate and I paid $40 to just park it at a local storage facility. Now, as time goes on, you're going to need more space and usually it's going to come in the form of equipment that can't fit inside the trailer. Let's assume for a moment you got to upgrade. Usually you're going to move into a storage facility. And I see this usually happening up until you have a few employees as a good intermediary. Now, in some parts of the country and across the world, you're going to be paying so much for that though, it's insane. The next logical step is, well, I'm going to. I'm going to rent closer to my geographical area and I'm going to look for a specific site that is just mine. Some things you might not keep in mind is the fact that you're going to have to improve the site. No longer are you inside of a storage facility. You might actually have to put up fencing. You I have to put up security systems, lights. Keep in mind, tenant improvements is a real thing. But I spent over $100,000 on tenant improvements. So these are other costs you want to keep in mind. Now, everyone asked me this question, should I go out and buy this shop space? And a lot of times it makes a lot of sense on paper. And I want to explain to you why it's not all it appears to be. The reason for it is actually mostly around the down payment. So if you're looking at a piece of land and maybe it's cheap, I'm just going to use the example. If you're paying $500,000 on a raw piece of land, keep in mind getting financing. You don't really have plans to build a st on like actually pour a foundation and actually build a building. It's very difficult to get a mortgage on that. So a lot of times you're going to have a lot more out of pocket. Even if you could qualify for 25% down, that's $125,000. That's cash down. Plus then you got to pay a mortgage. And so the biggest fear I have when people start thinking about shop space is sinking all of your cash reserves into a piece of land. I am not against buying your own real estate. In the long term, real estate is a good play, even if the market come down a bit. Usually people don't sell over the long run. Yes, your $500,000 piece of land might be worth 700,000. Just realize you're getting into a different business. I see as a distraction for most small businesses that are doing under a million dollars in revenue. Now, if you're looking at this as like I'm diversifying, I have other income streams. I'm not really. I don't need cash out of the business. That's a different story. You're looking this as an investor. It is not part of my core business, though. For the vast majority of people, getting out of the quote landscaping business and buying the real estate business actually is splitting their attention. And so now all their cash that was in their business bank account for their business goes into this real estate. And all of a sudden there's an opportunity to buy out your competitor for pennies on the dollar. Really, really cranking. And if you could just spend 10 or $15,000 on that, you could double the size of your business. And so I see so often the times people doing 300, 400, $500,000 in annual revenue, going out and buying a piece of land for four or five, $600,000, putting all of their cash, $100,000 down on this piece of land. And now the business cash poor. And it could take them a year, two years, three years to build those reserves back in the businesses bank account. And if they would have just spent half of that on expanding the business, they could have taken their 500,000 in annual revenue business and made it a 1.2, $1.5 million business over the next few years. The alternative is maybe instead of buying the land, I continued to rent 15 minutes away, a little bit longer drive time, but I was only spending a couple thousand dollars a month on rent. Was that about the same as my mortgage? And this is where everyone gets like, well, the mortgage is about the same as my rent. The down payment, that's what kills you. That outlay of cash at the beginning could otherwise be spent on growing your core business. The bigger your business becomes, the more it makes sense to buy closer to your service area. Because if I only have two or three trucks, four or five employees, I'm doing four or five hundred thousand dollars in annual revenue. Getting 15 minutes closer to my service area might save me a thousand or two thousand dollars a month in payroll. But if I tripled the size of my business in the next few years, now all of a sudden I'm doing 1.5 million. I have seven, eight, nine trucks, I have 10, 12 employees, and all of a sudden the same savings are much greater per month. So in my opinion, the number one way to be able to afford buying real estate or upgrading your shop space is just growing your core business. And the vast majority of home service businesses that are doing under a million in revenue would be better served taking what they would otherwise spend on the down payment on a shop space and spend it on their business. Don't get into this mentality that if my rent is starting to be equal to what I would pay on my mortgage for a shop space, that somehow that's going to be a better move. You are really good at home services. Just keep doing more of that. This leads me to my hat. If you're trying to build like a one to $3 million business, I would recommend trying to find a house that is inside of your service area that would allow you to be able to run the business from it. The reason for that is because if it's a house and you live there, get an FHA loan, have Much smaller of a down payment and a 30 year fixed mortgage. If you just took your rent that you would usually pay for your office space, two, three thousand dollars at a million dollar size business, for example, or even more, if you just put that towards what you're paying in your mortgage, you might be able to get a pretty nice house and you're definitely going to be able to get like a convent just by making a 30 year term, evens your payments out over the course of 30 years and makes the payment really, really solid, really low. And so yes, you might pay 4,000, $5,000 a month, but now you have your house and a shop space. Now is this an easy place to find? No, because it's going to be in your service area and usually have land, and that's not going to be an easy find, but it's going to be a whole lot cheaper than commercially rated land or industrially rated land. Make sure it's zoned correctly so I can run the business from there. But this is the ultimate hack. Be patient because whenever you think when it comes to real estate, whenever you get in a rush, I've seen people so many times, I've been bitten before. When I get in a rush with real estate, it always leads to something bad happening. And so there's really a two part to this when it comes to hack. And that is, number one, I'm looking for a residential property that allows me to have shop space. The second one is zoning requirements. Will it allow me to actually run the business to the size that I think I can build it to? So a lot of times you're looking at the periphery of your geography. And I'm willing to Travel an extra 10, 15 minutes if needs be. Because if you just by driving 10 or 15 minutes could potentially halve the amount that I have to spend per acre. If you really are like, nope, at the end of the day, I have to be downtown, I have to be closer. The number one way to be able to make sense of that financially is grow the business. The bottom line is most home service businesses, I want to skimp my shop space as much as possible until I grow to the size where being closer to my service area actually makes sense. And the longer I can hold my breath, usually the more I can afford. And the second thing is look out for that hack. The ability to get an FHA loan for 5% down or conventional mortgage mortgage for 20 or 25% down on a regular residential house where I can live and have my shop space on a 30 year mortgage is the ultimate hack. But watch your zoning. And that is, in my opinion, the ultimate way to grow a home service business.