Childcare Real Estate Options for ECE Owners
One of the most important decisions for any early education owner is whether to lease or own the facility from which you operate. The answer to this question typically evolves as the company grows and builds capital - and as the owner makes moves to preserve that capital - but there is no singular correct answer. Everyone must consider their own capital needs and business strategy, but there are very clear pros and cons to both real estate options for your childcare business.
To Own or To Lease? That is The Question.
Owning your facility may seem like the obvious choice—and it certainly has its benefits. For those who don’t intend to expand or develop additional sites, real estate can be a great investment for any excess cash. And by purchasing real estate, you secure a long-term asset that is most likely to appreciate over time. Owning also gives you the flexibility to make changes to your building without having to obtain consent from a landlord. Additionally, when it comes time to sell your childcare business, you can enjoy a future revenue stream by leasing the facility to your business’ new owners.
However, owning real estate is not all sunshine and roses. As the owner, you are responsible for everything—payments, maintenance, repairs, and renovations. And if you don’t keep up with the upkeep, you have the potential of getting stuck with an old, obsolete building that won’t be easy to sell. It also takes a significant amount of capital to invest in real estate, leaving less to invest in your business which has a greater potential for return. And, as we all know, real estate markets can be unpredictable.
When considering your childcare real estate options, leasing your facility is a great strategy for new business owners. Leasing permits you to open your business without a large amount of capital as it’s much easier to qualify for a lease than to seek financing for a mortgage. The lower cost of entry also allows you to invest in your business rather than the brick and mortar of a facility. And for school owners who intend to grow, leasing allows you to use your excess cash for business development—purchasing additional equipment and materials, or even another school. It also gives you the flexibility to move when the lease is up and as your company grows and needs more space. For owners planning their succession, selling as a “business only” opportunity is a great strategy. It is important that lease terms are favorable to get the maximum value for your business.
Unfortunately, for those who do choose to lease, landlords hold most of the power when it comes to determining the length and terms of a lease and rent expenses often go up annually. If the location becomes desirable, this expense can become unsustainable for some schools as rent is due and payable regardless of the performance of a center. And, in a typical net lease format, the tenant is responsible for all costs relating to the building including real estate taxes, property insurance, and repairs and maintenance.
How to Find a Childcare Facility to Rent or Own
Finding a facility that fits your program’s needs, budget, and long-term vision can be a challenging process, but with a focused approach, you can secure a space that supports both the quality of care you provide and the growth of your business.
Here’s how to find a space that supports your growth and meets operational needs:
Start with Licensing Requirements
Know your state’s childcare regulations before touring properties. Square footage per child, zoning, fire exits, and restrooms all affect whether a facility can be licensed for childcare use.
Identify Your Ideal Location
Look for locations near your target families — residential neighborhoods, business parks, or commuter routes. Make sure there’s enough parking, safety, and visibility for easy drop-off and pickup.
Leverage a Trusted Broker
Work with commercial brokers who understand specific needs such as zoning and compliance. HINGE Advisors can also connect you with real estate investment partners and provide strategic guidance on lease terms and long-term planning. Note that when you’re in the position to sell your real estate, it’s important to work with a childcare advisor like HINGE whose selling strategies will help you maximize the value of your property.
Search Online Listings and Real Estate Platforms
Monitor real estate sites like LoopNet, CREXi, and CityFeet. Set alerts for listings that meet your size, location, and budget goals. Act quickly as childcare-suitable spaces are in high demand. When working with HINGE Advisors, you won’t have to do this alone.
Consider Space Conversion Opportunities
Explore non-traditional spaces, like medical offices or storefronts, that could be converted for childcare. Just be sure to confirm zoning allows for it and factor in renovation costs.
For Your Consideration
Ultimately, owning or leasing all boils down to resources and long-term plans. Choosing to own or lease your childcare real estate is as much a personal choice as it is a financial one. So, as you consider your options, remember these key questions:
Are your capital investments capable of producing higher rates of return when placed in your core business cycle or when they are placed in real estate investment?
Are you comfortable leasing your real estate from a third party and managing that relationship in a way that is healthy for your company?
Are you open to the idea of retaining ownership of your real estate when you exit your childcare business in the future?
Whatever your current cash and tax situation, and whatever your future plans involve, taking the time to explore all aspects of your childcare real estate options can lead to great potential rewards in the future.
In fact, the team at HINGE has seen a surge in real estate investment and an increase in real estate prices within the industry over the last few years. Have you considered partnering with an investor to fund your next facility? Get in touch with our team to see what options may be available to you!