All Forum Posts by: John McKee

I wouldn't budge on lowering the rent because that devalues your asset.  Have your bank refinance you at the very last second because there is a good chance there will be another rate cut before May of next year.  Just have the bank refinance you for another 3 years, but don't let the tenant shake you down.  The only reason to lock them in for 10 years is because you want to sell it to another investor and get out because you have too much equity, but Like I said if you lower the rent then you lower the value you can get.  Other factors such as the quality of the tenant, and location will also determine the value you can get.

11) My spreadsheet tells me I'm supposed to make a profit.  My #'s don't lie.

12) Real estate is the road to riches

13) I know this area well and it will go up in value

To follow up on Evans point about option 1, I would advise not getting suckered into this arrangement as it handcuffs you when the economy is in a recession.  Usually tenants will come to you in recessionary times about a break in rent.  In the past I just give them a 10% deduction in rent for one year until things can improve.  In one case I game them a percentage based rent for a year as well (covid), then reverted back to the fixed lease afterwards.  If a tenant is asking for rent reduction in normal times, then that's a red flag that you have to find a new tenant.

I never heard of option 1 and I have been doing this for 20 years.  I would choose option 2, because when the economy goes south, gross sales take a dive.  Make sure you buy the lot and not the brand!  In other words when dunkin donuts decides to close a location, you are able to release it quickly.  Trust me I know!!!  Nothing lasts forever.  Factors such as competition, food trends, lack of management, ingress etc, can close these stores.  Ingress and Egress and drive thru capability are a must have.  Even the side of the street that the QSR is on matters.  One side of the highway can be more profitable than the other.  Make sure you get the sales data and ask where this store stands financially in the region.  If the broker doesn't know then you walk in and ask the manager...You would be surprised once you start getting people to talk. The other reason why you would choose option 2 is that no investor would ever buy #1 and the bank might have trouble financing a deal where the revenue can be iffy.  

the drive thru may not be that big of deal as it may be easy to convert back depending on the build out.  They have 5 years left and then 2 5 year options after that.  Perhaps an amendment that talks about new market rents in the first 5 year option would be reasonable.  Gives them time to recoup costs and grow their business making them a sticky tenant.

I'm more worried about converting this unit back to a drive thru some day as I think the value is in the drive thru.  They might be thrown off guard by saying I'm going to charge them more rent for their own built out.  After all they are leasing the entire property as is so they are assuming that doing a build out isn't going to cost them anything more in rent.

I have a standalone former drive thru bank that is now a vet clinic.  The vet clinic wants to expand the building at their cost into the drive thru area as they don't need the drive thru.  Should I charge them more rent to take up more space?   My thought is that the the drive thru is the most valuable part of this property in case I need to release it.

no bank is going to give you a loan without a personal guarantee.  

@Bill B.. Very good point on the paying down of principal.  It gives me something!  The bank said they won't give me an extension forever while I am looking for a tenant.  In the meantime they will probably jack up the rate on my extension which makes no sense to me since I don't have a tenant in place yet.  

The odd thing is that the bank is supposed to me my partner.  I have no problem handling the debt with my overall income, but the bank is putting pressure on me to do something now.  The bank wants the deal to stand on it's own as opposed to looking at the entire portfolio that I created.