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Seeds For Thought
Locating Your Business
Unless your business is home based or online, you'll need an off-site location. Choose your business location with care because the odds are that you'll be spending a lot of your future time there.You'll need to lease or purchase real estate: a shop, café, store, boutique, workshop, farm, restaurant, salon, outlet, clinic, warehouse, studio or gym in which to peddle your wares or perform your service. Correct real estate decisions can make your business easier to run. Poor real estate decisions can make your business life much more difficult, sometimes impossible. After personnel and inventory costs, real estate is another significant line item in your budget. You have a number of factors to consider when selecting commercial real estate for your business. Among these factors are: size, physical condition, location, price, lease terms and overall flexibility, given current market conditions. Within reasonable parameters, you choose an appropriate size facility. You want to find a comfortable working environment. You might be able to run a tailor shop in 400 square feet but maybe you could squeeze into 350 and anything over 600 square feet would be a waste. You might need up to 1,400 square feet for a karate school, bookshop, dance studio or sporting goods store. And, you could use every inch of 40,000 square feet for a general furniture store, indoor flea market or antique exchange. In your specific case, before you go looking at space, you'll want to know the minimum size you must have to operate, as well as the maximum size space that you can afford. Since most commercial spaces are leased by the square foot, size becomes an important cost consideration. You don't want to lease more than you need, but if your business plan calls for expansion, you don't want to invest in one site and then quickly outgrow that site and put yourself in the position of having to start re-introducing a new home to your customers. 
Most commercial space is quoted by an annual dollar amount per square foot. In other words, a 1,000 square foot store with an asking price of $18 per square foot would cost $18,000 per year or $1,500 per month. This price per square foot may or may not include the costs of utilities, water, taxes, insurance and other real estate related expenses. It is very important to ask about extras and for you to factor in the final cost of the space accordingly. The physical condition of the space you are considering is very important. Improved commercial space can range from "raw" to "turnkey." Raw space can mean you're renting just a floor, ceiling and four walls. You provide the rest. And, the rest can sometimes incorporate very expensive extras such as having to install your own heat/air conditioning system, rest rooms, handicapped access, etc. And, in most leasing situations, the improvements that you make stay with the property after you leave. The improvements are considered fixtures and become the property of the landlord. The opposite of "raw" is "turnkey." Turnkey means that everything is in place for you to start in business immediately, you only have to "turn the key." For instance, you might be buying a space for a restaurant, which formerly housed a restaurant and is ready to go. Or, you might be buying an existing business that is still in operation. To ensure conformity, most franchises are sold as turnkey operations Most space offerings fall somewhere between "raw" and "turnkey" and the condition of the space, the utilities included and how fast your business can be up and running should bear some resemblance to the price per square foot being quoted. Also note that in most commercial leases, as part of the negotiations, the building owner may offer you several months of free rent, called "start-up" months, to help you get your business rolling, and consequently your income flowing. Most professionals in the commercial real estate management business treat their tenants as partners with mutually compatible objectives. In almost every real estate investment book, you'll see the oft-quoted phrase that the three most important considerations in selecting real estate are "location, location, location." However, the importance of location is often misunderstood. To be successful, luxury brands need prestige addresses, for example, Rodeo Drive in Beverly Hills, Fifth Avenue in New York or Newbury Street in Boston. For other types of businesses, quite the opposite is true. Many profitable business opportunities abound in the inner city. Neighborhoods abandoned by major retailers and service providers can be fertile fields from which to reap honest profit. The big businesses may have left an area, but the people haven't and these people often lack adequate transportation to the local malls and must rely upon a new strong breed of young urban entrepreneurs for their consumer needs. Some risks of operating in economically deprived areas are real and some risks are just perceived. The inner city opportunities are there and you must assess the pro/con factors for yourself. In selecting a location, you must determine how important foot traffic is to your business. If you are in an "impulse business" selling things like costume jewelry or t-shirts to the general public, then a high profile location is of primary importance. No offense is intended, but people aren't likely to go out of their way to buy your t-shirt if the same t-shirt can be bought in a hundred other closer shops. On the other hand, if you are selling high tech-mountain climbing equipment to a select group of adventurers, or you are selling rare musical instruments to a select group of collectors, then these people will invest the time in finding your out-of-the-way location or e-commerce website and will be willing to wait for you to ship them the specialized/unique items. In these instances, the physical location of your business becomes a secondary consideration. In general, the more commonplace the item or service is that you are offering, the more important the location becomes. While the more specialized your product or service, the less important the location becomes and the more important your website presence becomes. Location must also be considered in the general context of advertising. With proper signage, a high visibility location is itself a marketing tool and a means to generate commercial traffic. In some situations, most often mall locations, you may be able to, or required to, sign a percentage lease. With a percentage lease, you would pay a base rent together with a percentage of your sales. Again, a percentage lease is an example where you and your landlord work in partnership toward your mutual success. In dealing with real estate matters, rely on your research. By conducting extensive and continuing research into successful ventures similar to your planned operation, you should find your own answers to many real estate questions. Find out what the best in your industry and doing and do what they are doing. Now, this is very important. Many entrepreneurs retire rich not from the value of their businesses but from the value of the real estate that houses their businesses. This point is so important that we offer an entire course devoted to acquiring and managing commercial/investment real estate. Following completion of this course, you should immediately begin Catholic Success - Real Estate. 
Andrew Martin, InvestorIn saying his prayers to Saint Joseph, in soulful reflection, he got the answer which was "to be not afraid." You've either got the nerve to make the hundred calls and take the ninety-eight rejections or you haven't. If you have the nerve, you have a way to succeed. His initial challenge from Mr. Taylor wasn't easy. It took Andy most of the next seven weeks to inventory the 272 investment real estate buildings in Newton. With his laptop under his arm, everyday, he was at the Town Hall at 8:30 AM when the office opened and he was there at 4:00 PM when the office closed. He went over the tax and assessment records for the town. He noted the property address, the number of units, the owners' name and the owner's address, if different from the property address. He recorded the type of zoning and the land area of the parcel. He entered the assessment for the land and the assessment for the building. He typed in the tax information. All day he did his research and each evening Andy returned to the office at four and stayed until nine, concentrating on rentals. Rentals have a quicker commission payback than prospecting for listing or sales. And rentals could be done at night. Finally, he was done. Having catalogued all the multiple dwellings in Newton and all the commercial buildings and all the industrial properties and all the developable land, Andy felt very good about himself. He emailed the files to Mr. Taylor. Throughout this project, no one in the office was paying much attention to Andy. So, Andy, figuring that he was entitled to at least a little pat on the back for his efforts, wanted to tell Mr. Taylor to be praised. "Well, Mr. Taylor, I've emailed you all my research." Mr. Taylor randomly opened to one of the files. "Andy, tell me about 337 Washington Street." "Well, sir, the information is right there." Andy pointed to screen. But, Mr. Taylor shook his head, "No, Andy, I can see the information you have here. Tell me about the property." Somewhat exasperated, Andy took the book from Mr. Taylor and began reading, "Well, it's on Washington Street..." Mr. Taylor raised his hand and interrupted what seemed to be a parroting exercise, "Andy, what you have here is information that I could get by searching the town records. In fact, most of this information is online on the town's website. You've obviously done a lot of clerical work I'm not sure that you've learned very much. But, you do have a basis for learning. Let's look at this 337 Washington Street. Who owns the building?" Andy looked, "The owner is Francis Brimmer." Mr. Taylor stood up and started to pace, "OK, Andy, tell me about Fran Brimmer." Andy read from his sheet, "Well, the tax bills are sent to him at 14 Summer Street in Newton. So, I presume that that's his address." "Do you know that 14 Summer Street is a home and not an office building?" "No." "Do you know if Fran Brimmer owns any other property?" "No." "Do you know if Fran Brimmer is a responsible property owner?" "No, I don't." Mr. Taylor sat on the edge of his desk and paused a moment before continuing, "Andy, I'm not trying to be hard on you. I just want you to realize what you don't know, but what you must know, before you can attempt to solicit Fran Brimmer as a client. "Mr. Taylor continued, "OK, what do we know about Fran Brimmer? We know that he or she is probably an absentee owner, an investor. Go to 337 Washington Street. What observations can you make? Is the property in good condition? How are the windows, the foundation, the siding and the roof? Is the property well maintained? What about the lawn, the hallways, the mailboxes or the parking area? What about the tenants? Are they at home; are they at work? What kind of cars do the tenants drive? What's your overall impression of this property? A fixer-upper? Average? Excellent? Condo potential? Room for expansion? 
"Who is the ideal owner of this property? If it needs work, perhaps a contractor? If the property is in above average condition and appears to require minimal management, perhaps a professional person would buy. If the tenant situation looks tricky, perhaps there is someone willing to take the time who has the financial resources to turn the property around. If the building looks well laid out, perhaps a condo converter would be interested. What's your general estimate of value based on the comparable listing you've seen?"Mr. Taylor concluded his important lecture to Andy, "Ask yourself questions. Learn something about 337 Washington. Learn something about Fran Brimmer. Then, now or at some point in the future, you may be able to work with Fran Brimmer to maximize his or her investment. Or, you may be able to sell the building for Brimmer to someone suited to maximizing the building potential. Or, you may be able to sell similar buildings to Brimmer." Andy seemed a little crestfallen. "Mr. Taylor, you mean that I should do this observation work for every one of these buildings?" Mr. Taylor wanted to make sure that Andy was getting the point, "Here we go again, Andy. You should do this work for every building which you expect at some point to sell. If that's every building in this town, then, yes, do the work for every building in this town. Take your digital camera to every property and add some photos to your electronic files." Andy had a look of an inmate who had just been denied an expected parole, "Well, Mr. Taylor, I guess I'll talk to you again in about another six months." Mr. Taylor held out no sympathy. "Andrew, don't look at this as a chore. Do you want to be just an investment property salesperson? Fine, all we'll do is add "investment property specialist" under your name on your business cards. Or, do you want to be a successful investment property salesperson? If you want success, then you have to invest. This work is an investment and this investment will pay you back handsomely in future, if you take it seriously. You're at the crossroads; you decide which path to take. You can work for your financial future and mine, or you can do Sudoku puzzles and play with your Gameboy all day. You decide for yourself whom you will be." As Andy returned to his desk, it was apparent that most of the office had overheard the conversation. Ann Brown, the Sudoku lady, gave Andy a sympathetic look as if he had just done a whole lot of work for nothing. Mr. Edgers grunted but didn't look up from his paper. Don Nardo seemed to feel a little sorry for Andy, even though Don realized the importance of the work that Andy had "just started." Don spoke up. "Andy, Fran Brimmer is a man. He owns a second property on Washington. He also owns one on North Main Street and two other properties in Dover." Andy was buoyed by Don's comment. "Have you worked with him, Don?" Don nodded. "I haven't worked with Fran in about ten years. The property he bought on North Main was my listing. Might be worth your while to see what he's up to these days." "Thanks, Don." Well, miracles do happen. For the first time, Don appeared to be taking Andy seriously as a person. Who knows? Maybe some day, Don would even treat him as a colleague. Over the next six months, Andy did not have much time for Sudoku puzzles. He spent all of his free time doing drive-by observations and taking notes. And, things were starting to click. He learned about good neighborhoods and bad neighborhoods and about good buildings and bad buildings and good tenants and bad tenants and good owners and bad owners. All Andy's research started to pay a dividend in boosting his rental work. As he learned about buildings and he rented apartments, Andy started to feel confident about advising building owners about rent levels. He could tell one owner, "Let me save you some money. Your asking rent for this particular apartment might be a little too high. This could mean that you'll either end up not renting the unit and losing a month or two in rent or you'll have to take a poorly qualified tenant and worry about getting your rent every month. Here's what the market says the rent should be for that apartment..." He could tell another owner, "Let me make you some money. Your asking rent for that apartment in that neighborhood is too low. At the rent I'm going to suggest, I can still get you a top-notch tenant. Here's what the market says the rent should be for that apartment..." And, having impressed the building owner, Andy knew enough not to let the opportunity for future significant profits pass. "Mr. X, I'm handling rentals at night but my full time job is as an investment property broker with Taylor Realty. Would you ever consider selling this building? Are you in the market to make any further investments at this time?" Andy was beginning to understand a bit of the art of salesmanship. And he was beginning to understand a bit of the investment property business. Most real estate investors were first and foremost business people. Would they sell? Yes, they might be willing to listen to the right offer. +Would they buy? Yes, they might be willing to look at a property if the numbers worked. Andy started to understand the real estate business. If you were in residential sales, you sold houses. The average homebuyer remained in his home for seven years. So, on average, every seven years, you'd have an opportunity to deal with that buyer again. However, on the other hand, investors were usually not as emotionally attached to their properties as homeowners. Investors wanted to make sound investments. Investors want to make as many sound investments as possible. Rather than one deal in seven years with homeowners, it was conceivable that you could make seven deals in one year with the right single investor. During the next six months of observation research, Andy was averaging two rentals a week, which paid him about $400 each, and he had two small investment properties listed. He had spoken with fifteen Newton investors who had outlined their investment criteria for Andy. Andy had one investor almost ready to make an offer on a six-unit building. Thanks to the mentorship of Mr. Taylor and Don and under the guidance of Saint Joseph, Andy was starting to make things happen. 
Go to Lesson Twenty Two16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 Index
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