Do you want to work for your landlord?
October 22nd, 2005 | by mbhunter |It seems like small towns have local real estate barons. Investors with so much property that they seem to corner the market on the good locations. Either they’re selling at exorbitant prices, or they’re substantially jacking up the rent just when your business gets rolling. One local restaurant was up for a year, and when the lease came up again, the rent was doubled (or so the story goes). They didn’t renew. The place was vacant only a few months until someone else moved in. I think that they saw that they’d be working for their landlord rather than themselves. It was almost as if the landlord said “Hey! You’re doing really well. You can afford to pay me more!”
One space about twenty miles away from here had a multi-story space — one restaurant, basically — that they were renting for $25,000 per month. $300k a year just to the landlord! Unless you’re Wolfgang Puck or Emeril Lagasse, restaurants are really difficult businesses to run, and not runaway profitable. Starting $25,000 in the hole each month makes it just about impossible. I often say that the only people who make any money in the shopping center are those renting the spaces.
Well, if I were to start a business, I’d like to work for me, not my landlord. Unless another location is necessary because of zoning, why not try to start it up at home? You’re already paying for your house (if you owe on it), so there’s nothing extra to shell out. You’re in control of your space and largely in control of how much you pay for it. This is how a friend of mine have handled a small business — Xion Studios — we’re doing it out of our homes.
If you deduct business use of your home from your income tax, though, be careful of a couple of things. First, you can only deduct utilities, etc., if the space is used exclusively for business. Partial use doesn’t count for the deduction here. Second, when you sell, there is a basis adjustment that results from that deduction, and you need to know the adjusted basis to figure out your capital gains. So, if you want to keep things a little simpler, but maybe pay a little more in taxes, just deduct the other expenses and keep your house expenses out of it. (Of course, you should take action based on the advice of someone licensed to give it — they can spell it all out for you!)
