Leasing Vs. Buying a Building for an Arcade

Been awhile, but here is the next installment in my venture trying to start an arcade. One of the major things I have been looking into has been owning the property for the arcade vs. renting/leasing. Both have their pros and cons, and the better of the two completely depends on what will best meet your needs.

The first and main thing to consider is how much time and money do you have to start the arcade venture? How much of a risk are you willing to take? The answer to these 2 questions can very well choose for you whether owning or leasing is the viable choice.

If you have the money, the time, and are willing to take a risk, then leasing a building space might be the best bet. If you have good credit you can try taking advantage of some of the recent small business start up incentives that various towns and cities are offering currently to help small businesses in this current economy (search business incentives and your area of business to find out what's available). This route requires a lot of commitment to work. You will need to make the business your number one priority, you will need to make sure you have a viable market in the area for what you're providing, you will need to keep a close watch on revenue and expenditures. You might find yourself (unless you're already rich) just barely scraping by for quite a few years. You also might need to carry some arcade titles that you may not like all that much (redemption games come to mind). This all depends on what the people want in your area. You can also create something unique that will get people to travel to (Tokyo Game Action had this with their Bemani selection, Wangan, Initial D etc.). Again, this is risky because you never know who is willing to travel. The key is to try and find groups of people and ask if they would come out to (check websites, forums, arcade events, etc), check out other arcade locations and what the people want, and do some research on the types of games and how much they cost. It is important to have a rock solid business plan with expected income and the expenditures because if you are leasing a business space, that is one huge chunk of money coming out of the pot every month.

Lets say you are broke and trying to start from scratch. Lets say you can not afford to take a huge risk. Lets say you already have a job that you plan on continuing to work. If this sounds like you then trying to buy a building or place to run the business might be the way to go. Again, this depends on how stable you currently are and whether or not you already have a place to live. Another important factor is if you really want to do this for a long time, or if starting an arcade (or any business) is a passing fad. The beauty about owning your own building is that you can do whatever you want (outside income also helps with this).

Scenario #1: Let's say you you have a decent job and are currently in the market to buy a house. You want to start an arcade as a side/part time business. Why not look for commercial property? While some commercial property can be quite expensive, you can often times find the classic 2 fer set up. By this I mean a commercial property with both a business space and a living space. Think about some of the buildings or businesses you've seen where apartments were set up above them. This is a perfect opportunity to own both a commercial and residential property in one. You can also support the mortgage costs of the building with your current income from your day job. Not having to rely on your arcade business for the "rent" or mortgage payment is both a huge stress reliever and a major plus. You basically have almost all of your revenue coming in as profit (minus some electricity expenses and repairs). you may say, what about heat costs or how about the taxes? These expenses are ones that you will have to deal with regardless of whether you own commercial property or residential (Click here for a previous posting about commercial vs. residential mortgages) . With this bit of freedom, you are able to experiment and run an arcade the way you want to run it. Hate redemption? you don't need it!

Scenario #2: So let's say you can't find a building in your are within your price range. Well, what about converting a house into a business? Ever see a business that is a part of a persons home? This way can be a little tricky for an arcade, but might be the most cost effective for starting out. Schedule a meeting with your local business planner and find out what zones are commercial in your area. You'd be surprised at how many houses are residential, but are located in a commercial zone (some even have dual residential/commercial zoning, but have not been set up to be commercial). This again can get tricky when it comes to the mortgage. You always get a better mortgage rate and longer mortgage term with residential property. If a house is in a residential/commercial zoning, you can purchase the house and try setting up a business in it. It is very important that you first make sure that your area can be zoned for entertainment (or get creative and do an arcade showroom) and that you will be able to get the necessary licenses and permits. Be prepared to have to possibly pave a larger driveway for a parking lot, add handicap accessibility, and various other changes to the house. These changes depend on the area you live in and all information can be found at your town/city business planner.

Ok, something you I said doesn't quite add up. If I have a decent job that can afford the rent of a business space for an arcade, couldn't I rent instead of buying? Of course, but remember that money that is rent is not going towards something you will be owning. This means that you have a little less freedom with your arcade venture as you will want the revenue coming in to at least cover the rent and expenses of running the business. If you happen to be making enough that a lease is no big deal and you want to run an arcade for the community, then more power to you! I know if I was in that financial situation that is what I would try doing. My personal goal is to set myself up in a situation where all the revenue from the arcade can be invested right back into the arcade. Andy and Chie did this with TGA and really set up a true community around their business.

Next time I will go into some more details about the current climate for starting an arcade.