Yes you read it right!

You are reading www.subramoney.com and you are reading ‘buy real estate’.

Well let me explain the context. In many local businesses the location of your place of business is critical for its success.

If you are a doctor, run a gym, a hotel, a hair-dressing saloon, bank-ATM, etc. your ‘customers’ are those people who are ‘accustomed’ to turn to you when they need the particular service. These are places which people frequent regularly and would like to have some certainty about the location. Also goodwill – say ‘locational goodwill’ gets attached to the place. People start giving directions based on your location – take the right after Hdfc bank ATM’. There are times when it even appears on the address – ‘Opp. SBI branch’ or ‘Vasundhara Hotel’.

Now if you have done business from such a good location for a long time (say 6 years) and you are doing well, please remember your landlord knows it too. So when you go for a negotiation he is likely to jack up the deposit and the rent. Imagine a gym owner’s plight when the landlord said “Rent will go up from Rs. 3 L to Rs. 6L’. If you have been charging Rs. 12000 for an annual membership, you will need 50 member’s fees to pay the rent. So suddenly the whole business viability is in question or a relocation to a more inconvenient location (from the existing member’s point of view)…

Then there is  the cost of doing up the interiors, buying equipment, etc…

So if you are businessman with a business which will significantly deal with locational advantage….BUY do not rent. This of course is a strategic decision, not a purely financial decision.