My Real Estate Investment- Part 2 of 3

Today I will discuss aspects of being a commercial landlord, and things I will do differently next time. Make sure you read part one to find out about closing the deal on commercial property.

Every time we got a call on our cell phone, we knew it was for the building. We had determined that would be our business phone number, and that was the only thing we used it for. We had several places interested in one or both of our spaces, including a college, a tattoo parlor, and a bar and grill. Finally a restaurant called us. It started off no different than any other, except instead of just wanting a price, they wanted to tour it. This is the first important thing about being a landlord that I found out. If they are serious, they will care whether the space can work for them, and THEN about how much. They know they can always negotiate on the price, but the space is what it is. He was ready to sign almost the day he toured it.

This left us in a quandry. We didn't have a lease yet, but we had found a good customizable lease online. You enter certain fields and your state, and it pops out a lease that is perfect for you. But of course, it is not perfect for you. Usually the tenant will ask for certain provisions. These must be written into the lease. Other times it will have something that has no need to be within the contract. Be careful if you decide to remove anything, because it will likely have a purpose for being there. We almost removed a certain phrase from the lease, and if we had, we would have been in trouble because we've had occasion to invoke it twice now, and he hasn't opened yet.

One of the most important things that I'm still learning, and that could cost me a fortune is that you need to look out for your best interests. This doesn't mean you need to be mean, but you need to make sure that you are watching your own bottom line. We were so happy to get a renter that we agreed to a lot of stuff that we should have said no to. $5000 later we are still not done, and he's asking for more changes. We are becoming good friends with the word "no". While tenants may not like the paint color or they want new tile, remember that while you may be tempted to say that it is your building and it goes to the resale value, if you spend everything you have, that resale will come a lot sooner than you intended. Besides, new paint, new tile, or even a new water heater don't really add anything to the value. If the old one isn't working or is damaged, certainly replace it. But if it's asthetic, that's the cost of doing business- for the tenant. Looking out for your best interests also means enforcing the lease. If there is a clause that is not being followed, you call them on it. You may feel like you are being the bad guy, but that all depends on how you phrase it. Again, there's no need to be a jerk about it.

Finally, and I cannot stress this enough, do not put an "option to purchase" in the lease. I am fairly well educated with the law, and something about this struck me as a bad idea. The tenant asked for it. After all, he becomes familiar with the building and traffic, and after a few years he decides to buy. Why move down the street? First of all, almost every lease contains a provision that if we sell, he cannot be tossed out on the street. The buyer would have to agree to this before the sale would go through. It is standard in commercial property. Of course the tenant would rather buy, because they can own rather than rent. Well, after doing some research, I found that the "right to buy" that was being pushed for meant that he could force my sale. After a few years, he could decide he is tired of renting, and I have just given him the right to buy my property. Ouch! "Right of first refusal" and the million other similar terms are bad for our situation, because we did not go the traditional financing route. If my mom financed it, it is only fitting that she gets the chance to say she's not interested in buying it when we decide to sell. After all, she still owns a stake in it.

Tune in tommorow, and I will discuss how to start your own real estate empire on very little money. Yes, it sounds like a scam where I am trying to get your hard earned money. In all honesty, I wish I could figure out a way to make money off this, because it would make me very rich indeed. I can't. There's no scam, only a bit of work, good credit or a little money socked away, and a lot of waiting. In my opinion, this is the most fun of the three part series. Until then...