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Whether you’re trying to get your startup off the ground or running an established business, properly negotiating the terms of your commercial real estate lease can have a dramatic effect on your bottom line.
Here are six tips to help you get the space you want for the right price.
Do your homework
Research what similar spaces in the area are going for - if you learn that other area properties are renting for much less, use that information to negotiate a better agreement. If the asking price for surrounding property is much higher, investigate potential issues there may be with the property you’re considering. Research the property owner as well, as you will want to make sure that your business location is properly maintained and is kept in good condition by the landlord.
Finding the right tenant for a piece of commercial real estate is crucial to the profitability of the property. Be sure not to overlook the following.
Examine the tenant’s finances
For an existing business, review the potential tenant’s revenue stream. Request tax returns and certified or audited profit and loss statements for the past two years as well as year to date financials. If you’re working with a startup, run a credit check and review personal bank statements to make sure they can cover the rent. Even if all the numbers look good, you should require a substantial security deposit. For startups or newly formed businesses, you may want to consider a personal guaranty from the business owner. For LLCs or other special purpose type entities, a corporate guaranty from the parent company might be in order. Ensure that the financials you are reviewing match the name of the legal entity that will be leasing the space.
A little research and data, combined with a solid plan of action, can turn an ailing property into a cash flowing asset.
Here are three tips to help you succeed.
Step 1: Why is the property not succeeding?
Things that should be considered in this analysis are the condition of the property, the condition of the surrounding properties and submarket, and demographic trends in the area. Does the property have physical or functional obsolescence issues that make it less than desirable for today’s businesses? Has the property not been maintained well compared to surrounding properties?
Having a “green” business doesn’t necessarily mean building a state-of-the-art facility that has its own recycling center. There are simple, affordable steps you can take to make your business more eco-friendly, even if you rent your office space.
Change your office habits
Installing a bike rack or offering bus passes to your employees promote alternatives to driving to work. Recycle paper, plastics, toner containers and batteries. Instead of disposable break room supplies, invest in washable dishes, glasses, coffee cups, etc. Instead of offering bottled water, install a UV type water filtration device in your break room and encourage the use of water bottles and glasses.
At least 30 billionaires in the United States made their money from real estate. Here are some tips to help you build an income from real estate.
Determine your goals
Are you investing in real estate as a way to supplement income, now or in retirement? Do you see your real estate income as a way to replace the traditional income source of full time employment? Will you want to be a hands on investor or a passive investor? Will there be partners involved in your investments or do you envision a solo investment strategy? Do you prefer to develop or purchase existing property, or are you open to both?