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What are the pros and cons of leasing vs buying? I want to get into the automotive repair business just doing

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The BAF Group LLC
MD

What is your problem, Scott? You took one paragraph and made it your entire, negative response. Keep in mind that the SBA is becoming more concerned about lending to people that do not have experience. I NEVER SAID you cannot buy a repair shop without being a Mechanic. I preach caution. Like reading something fully.

Jan 6, 2016
Scott Krause
Automotive Business Brokers, LLC
Cherokee County, GA

Don,

Although I have never commented on another brokers or writer's opinion, in this case, I will (but of course not personal in anyway).

I understand the novice automotive business buyer scenario that you wrote about several times throughout BizBuySell is always a possibility, but it is VERY narrow-viewed and entirely based on fear, not to mention, that fear-based scenario can apply to all businesses and in all industries. When you're understaffed, you manage it. The End.

You DO NOT have to be a mechanic to buy, manage or operate an automotive business!

I have over 25 years in the automotive industry and started my niche market business brokerage and commercial real estate firm selling automotive businesses, franchises and commercial real estate in 2007 and have helped dozens of buyers with no automotive experience acquire, build and succeed in the automotive industry.

The automotive industry is an EXTREMELY safe and solid industry to own a business. The high price of new cars encourages auto owners to keep their used car longer (11.1 year avg as of 2014) and most automotive owners prefer not to pay $125.00-$165.00 per labor hour to have their new car dealership repair their vehicle, which leaves the independent business or franchise owner to service the vehicles.

Although I recommend "learning" the buzzwords (which the technicians will gladly teach you because they want to stay busy) and understand what they mean for the purposes of communicating with your customers and technicians, the ability to turn wrenches is NOT required and many cases NOT RECOMMENDED.

Why? Because your job as owner and/or CSR (customer service representative) is to understand your customer and to be able to communicate with people in an honest and trustworthy manner, manage the staff and grow the business.

In many cases, mechanics do not make very good CSR's. They are not accustomed to communicating "pleasantly" with customers and they tend to side with the issues of the technician and not their customer. For example, If they feel their buddy-technicians don't like to perform oil changes (because there's no money in it for them), then they'll turn the job away, siting they are too busy, or scheduling the job far into the future knowing the customer needs the work done ASAP, etc.

The business owner knows very well there is no money in Oil Changes, however the owner is constantly trying to build his/her customer base. They need new customers and want to keep existing customers while their competition is trying to steal their customers everyday through mailings, coupons, TV & radio advertising, etc.

"Your competition is working 24/7/365 to kick your ass"- Mark Cuban

Finally, to be a successful automotive business owner, you DO NOT need to be a mechanic!

Please consider my letter prior to providing automotive business entrepreneurship advice to common-folk in an industry where your advice is not sound.

Again, none of this is personal in anyway, just trying to set the record straight for the public and maybe help you understand the industry as well.

Have a GREAT day!

Sincerely,

Scott Krause
AutoBizBrokers, LLC

Jan 6, 2016
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The BAF Group LLC
MD

In my view, if you can afford it, always buy. And let us be clear about this, because there have been several questions over the past years about leases versus purchases. In this context, I am talking about purchasing or leasing a space, not the business. Leasing a business is impractical. Purchasing a business and leasing or buying the property is a different issue. My comments here are devoted to the process of leasing or buying a garage for the purpose of conducting the business of automotive repair.

So, let us say that you purchase a garage for $250,000. You can get an SBA loan with 10% or so down, giving you a loan payment of less than $1500 per month. If you have a landlord renting you that same space, he/she is probably going to charge you that same $1500 per month, plus whatever percentage he/she feels he can get in the way of profit. And in most cases, in that kind of a business, you end up doing a large amount of improvements and up keep on property that you do not even own. You also are then not faced with increased rent every year - customary in almost any lease you see - which obviously allows you to keep a lid on at least some of your expenses, over time. At the same time, in most cases throughout history, commercial property rises in value, frequently at rates higher than residential property. That means you will be able to realize a gain in the value of your property in two ways, over time. The first way is just in the way property values rise over time, as stated above. The other is that, with each payment you make to the bank, a portion of what you are paying is applied to the equity in the property. That money simply comes back to you, when you sell.

The negative really has nothing to do with whether it is better to buy or lease, but how much such a property will cost and whether you have the money to make that kind of a purchase, to begin with. I used the example of a $250,000 garage, but that was admittedly just an example. Most two to three-bay repair shops in my own market will cost upwards of $650,000. You would then need a bare minimum of $65,000 for your down payment, plus whatever you need to start the business. The biggest reason businesses fail in the US, is a lack of capital. If you start your business with too little cash on hand, you were almost certainly doomed to failure.

Finally, a most fundamental question is whether you are a mechanic, yourself? If you are not, I would strongly suggest that you do not get involved in an automotive repair business, without thinking it through with extraordinary care. In starting out, if you have one or two repair bays, you will end up with one or two mechanics. If one mechanic goes on vacation, are you prepared to fill in and turn a wrench, yourself? If not, while that mechanic is on vacation, your business volume drops by 50%. What happens if that mechanic is sick? What happens if he/she dies? What happens if he/she takes a job at another garage, maybe even convincing the other mechanic to go with him/her? Mechanics can and will leave her garage at a moments notice, and he can take you weeks or even months to find a good replacement. It is not all doom and gloom, but it takes an extraordinary amount of thinking and planning, in order to avoid the pitfalls.

Good luck.

Oct 1, 2014

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