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First lease advice.


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I'm going to start negotiations this week on lease. It's a 2500 sq ft warehouse style building. Has office and 2 big bay doors with good high traffic road frontage(top 2 in town). The listing agent told my agent and I one of the other units in the complex got approved for $4 sq ft gross plus sales tax so that is my target price. Does anyone have any suggestions they wish they negotiated when the signed their first lease.

 

I'm looking for:

-3-5 year with option to renew

- I would love to limit my personal guarantee to the least amount of time though my hopes aren't that high(bank owned)

-CAM fee is included as well as waste

 

 

Any advise is always appreciate.

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Lot's of variables go into lease making it somewhat unique for everyone. Not sure what does the sales tax doing in the lease, but again, different state different terms.

 

Looks like you are starting from the scratch, was there a similar business there previously? If it's a good location, why it failed? would be my first question...

Do you have a business plan and does that include $10k a month?

Not knowing your market it's impossible to say if it's a good deal, but I'd be inclined on getting another opinion on $4 a sq ft. Call someone else witha similar listing and see if the price is similar.

 

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Fl is working on eliminating sales tax on commercial/short term leasing. $4 is a pretty fair price for location. This unit has been vacant for years and there is successful transmission place next unit over. Business plan has even written for over a year. And we are working with some mentors from other areas that have been a great help. Just looking for some advice from within the industry for any "I wish I did this" type situations .

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The only "I wish I did this" for me personally is

Going for a shorter lease term a 3 year instead of 7 year and a two longer options like two 10 year options instead of one 15 year option.

Owning your own place is another, hoping it is still achievable for me and others.

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In my last lease for a vacant building that was empty for well over a year I proposed a 3 year lease at a per month rate, but I would give first, last and 1 month security at the signing, but I wanted 1 month free, the 3dr month I was in the building. This gave me a slight break in the outgoing funds on a start up business. It was to be a triple net lease and I wanted 2, 5 year options to continue at the end of the first 3 years. Since it was empty, I felt I had some bargaining power and if I had to I would forgo the free month, but he gave it to me to just get someone in the building. I had a 6,000 sq ft warehouse type building with other smaller shops on either side of me and I paid $1800 per month plus taxes and any upgrades I did to the building. Second lease we went to $2,200 and third lease went to $2,500. I ended up trying hard to buy the entire building but never got him to let it go.

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Make sure you take into consideration what repairs and maintenance you will do on the building, and which ones are the responsibility of the owner. For example, in my lease, i will pay repairs on the heating/A/C system, but if the unit need replacing, that is the owner's responsibility. Also, It doesnt hurt to try to put an option to purchase in the lease, so that if you do want to buy the building, you can.

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Partners and landlords are bad news.

.

 

Agreed. For the price you are renting at ($10k/mo), you could buy a building for $1.8M and cover the mortgage. That much cash will get you a brand new 12 bay garage, fully equipped with latest everything, on a very busy road in a major city.

 

Only lease if you absolutely have to.

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You might want to look at capitalization rates generally as a rule of thumb good cap rates are usually in the 6-8% range (cap rate is annual rental income divided by purchase price) in other words is the building worth 1.8 million as Wes pointed out? 7% of 1.8 million is 126,000 divide by 12 (months ) is @10,000 a month.

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It's $4 sq ft annually. Lease would be 2500x4/12= $833 month. Very low cost.

 

Building cost to buy is 91k but i would have to pay cam fees and insurance. For now this is my best choice I will have first right of refusal if sale is offered.

hahaha,

that's why they say never assume ha?

At that rate, you may be better ranting i guess. Or maybe it make a lease with option to buy if you feel like it.

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That makes more sense, however that is still a cap rate of 10% roughly. You mentioned the location was great and sometimes if that's the case then it's worth that alone in regards to advertising

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It's about %10 less the other cost i would be responsible for. Mainly 1.5 sq ft cam and other random assessments. I do want to purchase but I need my cash for startup cost. The listing agent has done a very poor job on the listing and it's very hard to get info about purchasing. This should work to my favor and I don't foresee then building selling in the near future.

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It's about %10 less the other cost i would be responsible for. Mainly 1.5 sq ft cam and other random assessments. I do want to purchase but I need my cash for startup cost. The listing agent has done a very poor job on the listing and it's very hard to get info about purchasing. This should work to my favor and I don't foresee then building selling in the near future.

 

Great work on the low lease rate! Sorry we jumped to conclusions early on.

 

If you are going to put any "lessee improvements" into the building, I would recommend stating it up front and asking for the lessors to place either a no-sale time period in the contract (ie 3-5 years) or a right of first refusal should they decide to sell. You do not want to spend a lot of money installing lighting, signage, oil collection, etc. on site on the vague hope that the building does not sell for awhile. It needs to be in writing that they either cannot sell the building for a period of time or you get first dibs when they do decide to sell it.

 

Your town is fairly small (assuming Leesburg here) at 15k residents, so word-of-mouth typically means more than in a larger city where location reigns king. With that said, your location and price sound like a great deal!!

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Great work on the low lease rate! Sorry we jumped to conclusions early on.

 

If you are going to put any "lessee improvements" into the building, I would recommend stating it up front and asking for the lessors to place either a no-sale time period in the contract (ie 3-5 years) or a right of first refusal should they decide to sell. You do not want to spend a lot of money installing lighting, signage, oil collection, etc. on site on the vague hope that the building does not sell for awhile. It needs to be in writing that they either cannot sell the building for a period of time or you get first dibs when they do decide to sell it.

 

Your town is fairly small (assuming Leesburg here) at 15k residents, so word-of-mouth typically means more than in a larger city where location reigns king. With that said, your location and price sound like a great deal!!

 

No worries. we included in the intent to lease for us to have first right of refusal. and a 2 year lease(realtors suggestion) with 2 year option to resign at same rate. I am not sure they will accept such a short lease but it limits my personal liability.

 

We looked up the tax records when we put in the offer and the listing agent was off base on square footage. It looks like its about 3300 sq ft which is actually better for us. We will measure ourselves during inspection and iron out the final before official lease is drafted.

 

Town is about 20,000 residents many retired. We are located near The Villages, largest retirement town in the word. A lot of the residents live in communities that mimic The Villages without the large cost. Seems many seniors take better care of their cars than average.

 

 

Again, everyones advice is welcomed.

 

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  • 1 month later...

Update: Over a month later the bank finally got back with us on our offer (I am glad they work so quickly and diligently). They want $4 a foot plus CAM fee ($1.55) so about a %38 increase over my offer and what the listing agent "claims" another unit was approved for. I am been put off by the lack of respect for time from the bank and CAM association, which is no surprise coming from a bank.

 

Now since the price is in another category we are going to make an offer on a 6 bay shop that includes a bit of equipment. This time we are dealing with a private owner and no corporations. Still a stubborn old man but he cannot be worse than two large corporations. He is asking $2000/gross a month with 2 lifts, bulk oil drum, waste oil drum, trans jack, compressor.

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Location?

a few miles from the other place on Main st. One of the few main roads coming through our town and the only one that leads to the interstate. Not as much traffic but 150ft of road frontage and a huge landmark (bowling ally) next door. Still a high traffic road. We are deep in negations and are closing in on a price. He is very quick in responding(actually in person with my realtor). Should hopefully have "contract to lease" agreed to tomorrow.

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