Dipping my toes into commercial real estate!

[Aleah S.]

Hello! I am a small business owner that has recently dipped her toes into the commercial real estate water. The water felt great, and I want more! I am now here wanting to learn from you all so that I can gain more info about commercial real estate so that I can grow in the field, and continue having positive profitable experiences! I come here 1st as an empty sponge, ready to soak up info, then use that info to create a masterpiece as I am also a blank canvas.

Let me give you the back story of my 1st taste of real estate investing.

So I have a commercial lease for my existing small business. I have been at this location for over 10 years & have grown to be my landlords largest tenant. The landlord & I have a great relationship. Any time a space is available, he asks me if I need additional space to expand my exsiting business. A few months ago a space became available and he asked. Although I didn't need the space for my existing business, I told him I wanted to take it and sublease it, which he was ok with.

During this Covid pandemic I had already been thinking about ways I could diversify my income. I have always wanted to get into real estate. I thought managing 1 small sublease would be a great opportunity for me to get my feet wet with limited risk. So I signed the lease. I then had a contractor come in and paint, and do a few other minor "make-ready" things.

Before my small renovation to the space was complete, I already had people wanting to lease it.. I actually had a tenant give me the deposit for the space before I was complete! It's been about 3 months now, and it has been smooth sailing. Every month my tenant pays me, I in turn pay the land lord, but keeping the several hundred dollar differance between what my tenants pays me and what I pay the landlord.

What is the technical name for this type or real estate investing that I am doing?

By me not flat out owning the property I know I am leaving money on the table. But I like the security that it affords me while I build up my confidence and learn more about this. Also since I am not the building owner, I am not on the hook for various expenses related to the property.. For example. 2 days ago my tenant called me about the AC making a loud noise outside. I then called my landlord and he immediately had an service tech come out and repair it. The cost for the repair was $500. I did not have to pay this $500 fee, but the landlord did. If I would have had to pay this fee, that would have wiped out my profits for the month. But I know in theory you have (should have) more positive months than negative so overall you still are profitable. But this showed me a real life example of how you can get into a new property and have unexpected expenses that pop up so it best to have a credit line or cash reserves on hand to be able to absorb these cost before the property itself has produced it's own cash reserve.. I feel this sublease thing I am doing, is like on the job training!

I have created a new LLC entity and opened a new bank account to deposits the funds that my tenant pays me. I also pay the rent to my landlord from this account. I currently don't touch the account for anything else, and the balance is currently a few thousand dollars and growing every month. Other than the original build out that I did, which its cost was covered with the tenants deposit + 1st months rent, I haven't had to spend any other money. Since I have and existing relationship with the landlord he did not charge me a deposit. He only charged me 1st months rent. So the deposit my tenant gave me is just sitting in the bank account that I opened.

This overall experience makes me think I have been working way to hard my entire life, lol! I want to do more of this.. So I now have another opportunity to lease another space at this same building, and sublease it...

How do you all feel about this current strategy I am working?

What are the pitfalls, and where are the pot holes that I need look out for as I navigate this new terrain?

I feel that as I continue to do this I will build more confidence, build more cash reserves, & I eventually will be in a postion to start buying commercial properties. I will then use everything I am learning in regards to tenant relationships and property management.

I didn't know if I should have posted this here or in the "Real Estate; Innovative Strategies" sub forum.. If you think this post is a better fit over there let me know!

Thanks.