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Jeffrey Blake Adams prophoto@adamsimages.com

Want to Build Wealth in the Photography Business? Buy Real Estate

If your Photography Business has sales over $1.5 million per year, it’s time to buy a building.

This may be the most important financial decision you’ll make for your company, because the building will be the only hard asset you own.

Photography Businesses, like dental practices, have good cash flow but poor asset value. Unlike a successful retail store, you don’t have a lease in a great traffic area. You don’t have inventory. You don’t have repeat business built up from years of advertising. All you have, essentially, is your reputation, which I’m sure is a fine one, but tough to sell when you’re ready to retire.

Look at the equipment rep firms in your area. They figured it out a few years ago. Being a rep is like being a dentist. Reps were facing retirement with no way to sell their businesses, so the smart ones decided to create the distribution business—a business of hard assets. The reps who made that move now have inventory, a big location (which many of them own), repeat business and an ingenious exit strategy.

You need an exit strategy, too. And the best exit strategies include hard assets, because they’re easier to value. Your best hard asset is your building, so let’s stop leasing now.How much building can you afford?

The typical Photography Business has five or six employees for every $1 million in revenue. At $1.5 million, the typical company is in the eight- or nine-employee range, with three to four people doing the shooting and four or five in the office, selling processing, fulfilling orders. Those office people need about 1,000 square feet. The Shooting area is another 1,000 square feet. Your Display, consultation and presentation room will add another 1,000 square feet, giving you a 3,000-square-foot facility.

A 3,000-square-foot facility will rent for at least $2,500 per month in any major market. Now let’s look at buying an office. A 3,000-square-foot office condo is easily acquired in most metropolitan areas. The purchase price is about $400,000, give or take. Commercial loans usually require 25 percent down, so your mortgage is $300,000, at 6.5 percent, or about $2,000 per month with taxes.

Where should you get the $100,000 down payment? Take out a home equity loan if you have to, and have the business pay it off in 10 years. That adds another $1,200 or so per month.

Let’s review: At $1.5 million in sales, you can probably afford to buy the building you’re in by leveraging the equity in your home.

Other buying tips - Buying more than you need. Have your eye on a building that’s too big for your current needs? Don’t expand into it; that’s bad cash management. Instead, sublet the excess, ideally to an interior designer, architect, plastic surgeon, family doctor, graphic designer, bridal consultant, wedding gown designer etc.

Be a landlord, and use the excess space to reduce your monthly payments. See how nice this is? You’re using your company to build future value. For you.Buy the building personally. Put the building in your name, your family’s name, heck, put together a trust for the kids. Then write a nice triple net lease and have your Photography Business pay the rent. The rent covers the mortgage, insurance, maintenance and property taxes. In essence, your company pays for everything, and you have a personal asset your company is funding—an asset that will appreciate, probably faster than your business will. And the IRS lets you depreciate it!

Plus as equity builds, you can borrow some out, (IF the rents will cover the mortgages) and buy more rental properties! Build value through assets.

The Photography Business is famous for cash flow but lacking in tradable assets. Cameras become obsolete within 6mos, lighting and gear are great, but real estate will always be there. Why not take that cash flow, then, and do something good with it?

That’s why doctors and dentists are involved in investment and real estate funds. They’re taking their everyday cash flow and making the cash work for them by investing outside of their businesses. There’s only so much money you can (and should) put back into your company, and there’s only so much you should be taking as salary. Putting aside a good chunk of cash into your own building helps build value, and you get to use funds you’re currently giving to a landlord.

And if your company’s cash flow is good enough, and you don’t mind being a landlord, buy the buildings around you. After 10 years go by, you’ll appreciate the income and the equity from your real estate assets. Hopefully, your Photography Business will be performing nicely as well.

I have several students that have done this, to great success. One comes to mind, a couple, who are fabulous photographers. They bought an old bldg in an old downtown area south of ATL. It was one of those deserted main streets, when they bought the space they needed and the one next door. They planned to make next door storage. But once they opened, it was obvious they needed both spaces. So they had their gallery/consultation rooms on one side, and the shooting production space on the other, and upstairs they rented out the apts that were there.

Then, a funny thing happened, ATL boomed, and their little deserted town started to fill up as the population from ATL spilled over. The made a hard choice, sold their own home for a great profit, and renovated the bldg, so they had luxury loft space above to live in, a rental above, and totally luxed out their studio/gallery below, whilst also buying the two spaces next door. Now they own a million dollar plus property in a burgeoning bedroom community just outside of ATL. Their retirement should they choose to retire, is set.

You can do the same, look you are paying someone’s mortgage, why not pay your own?

Jeffrey Blake Adams 2007