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Dave Says: Buy Leased Building?/What's Your Priority?

May 30, 2017 10:26AM, Published by Kitty, Categories: Finance



Buy leased building? 

Dear Dave,

I’ve operated my own small business for a couple of years. In that time, I’ve been leasing the building that houses my company. How do you know when the time is right to buy a place and stop leasing?

James

Dear James,

I’m a big fan of leasing the first few years after starting your own business. It’s even better if you can work out of your home, but I understand that’s not always practical.

In my mind, you should only buy a building when you have a good idea

what your building needs will be from a solid track record. Growth is a good thing, but in some cases you may want to hold off buying a building if you’re growing too rapidly. Don’t make the mistake of focusing too much on real estate and not enough on generating revenue and managing your growth intelligently. You would also want to make sure you’re going to be in anything you buy for a while, because you don’t want to be stuck with a residual value. A residual value is the remaining value of an asset after it has been fully depreciated.
In the first three to five years of
starting your business, you should lease. After that, you can choose to lease with an option to buy or, in the right situation, buy a building — debt-free, of course.

—Dave

 

What’s your priority?

Dear Dave,

I work weekends while attending college full-time. My parents have been generous enough to pay for most of my school expenses, and they let me live at home while I complete my degree. Still, I’m trying to figure out how to move out and continue working, while continuing my studies full-time and attending career-related events. We live in an area where the cost of living is high, so I’m not sure how to handle all the facets of this situation.

Joel

Dear Joel,

I think out of three things – school, work, and where you live – you need to decide which is your number one priority. If it were me, school would come first.

In order to go to school without borrowing money, you’re going to have to work. Getting out of school on time, and attending some of the events that will take you toward your career, will pre-empt work. You’ll have to work enough to pay for things, but if you can finish school and hit your academic and graduation goals while staying at home a little bit longer, that’s a pretty good deal. It’s a nice thing your parents are offering, but I can understand your desire to be out on your own.

I want you to be out on your own as soon as you can, too. But if you do that right now, you’re going to have extra bills and be forced to work even more. That’s going to disturb your entire school process. Guess what your number one priority was in that scenario? Moving out! If it’s the tail that’s wagging the dog, it has become the number one priority. If it’s disrupting work, and thereby disrupting your academics, then you’ve put your priorities on the wrong thing.

In my mind, the number priority should be finishing school on time, and attending as many connected events as possible. Meanwhile, you’re working so much that you’re able to continue doing all this debt-free. If that means you’re staying at home a little bit longer to pull it off — do it!

—Dave

* Dave Ramsey is CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.

 

 

 

 

 

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