All Forum Posts by: Luke Mccandless

We are trying to move out to a current house - convert to rental and buy a new house owner occupied. It seems like we are not able to get financing as the lenders wont count the income from the rental property until after it's rented (signed lease) - which it can't be rented until after we move out. Anyone else run in to this catch 22 madness? How do you approach it? 

 @Dave Skow I own 2 other rentals by currently rent my primary. I would like to make this my main home while not traveling but get income while it's vacant. 

@Michael Haas thanks so much for the comment I run one airbnb now remotely and it's been a learning experience to be sure. I would love to expand my STR portfolio and then push profits into LTR investments. I am considering either a house hack 2 unit and airbnb one or a condo and airbnb it while I'm not in town.

I am a remote working thinking of owning a condo in Seattle that I would live in ~6 months out of the year and rent on Airbnb the rest. This seems doable in Seattle with a business permit but I wanted to be sure that was correct? 

https://www.housingwire.com/articles/49851-fha-to-make-financing-easier-for-condo-owners/

Now that fha has changed rules on condos where do we think this will have the most impact on prices?

The "integrity, honesty, ability or business ethics"  comments were  / are out of left field I thought about asking why they would say that or felt that way but do not think it's even worth it at this point. 

@Bob Langworthy thank you so much. It was a red flag for me to be sure and my father and I felt a bit offended by the accusations. We are going to move onward and upward. 

To start off - this is a small town (3500 people) and there is not a lot of demand for small commercial lease space, it also means we are working with a lot of new business owners with limited means. 

We have a vacant ~1000 foot unit we are trying to rent for $795 a month plus utilities. We are asking for first last and deposit for move in ($2385). This is the exchange:

"I have read through the amended lease. Thank you for making the changes to the points of concern.
I appreciated talking with you this morning about the ability to launch our business in your space within our budget.
I have a proposal for you regarding your offer of reducing the upfront rent, or prorating the last months rent payment.
I purchased 60 boxes of commercial flooring each covering 18.1 square feet. Amazon has this flooring for 66.34 per box. The value of the flooring that I am ready to install is $3980.40. This would cover the entirety of both rooms of the space we are looking at putting our restaurant. My friend, a licensed contractor from, bid the installation of this flooring at $2.00 per square foot including baseboards, at $2000.00. That makes the value of the flooring installed $5980.40. He is willing to help me install the flooring. My cost for the flooring, and his help installing is $1600. So, value of 5980.40, we can get it in and installed for $1600.
I propose that the discount of our rent on the front end, and our security deposit, sell you the floor installed. Either a discount if $100 per month for the first 8 months, or $200 per month for the first four months would account for the first $800.00. The security deposit of $795 would be paid by us in the form of the flooring installed, and refunded to us contingent on our leaving the space acceptable when we vacate, whenever that would be. At that point the floor would be yours, remaining in the space. I have attached pictures of the flooring in its current condition. I will also be emailing a link to the flooring for sale on Amazon. I can send you pictures in the morning of the purchased flooring in boxes if you wish.
Thank you for considering our needs as we start our new business. I will look forward to seeing you this weekend to hopefully sign a lease. Please consider my proposal."

My response:

"Thank you for the detailed proposal. It's important to us that you rent this space and we would like to work with you. It's also important for us as a business to have a reasonable amount of security from a small deposit in case there is damage or other issues.

With that in mind it's reasonable for us to have a first, last, and deposit in hand at signing. The total would be $2385 this is a small and fair amount for a commercial space. We would be willing to help you with the flooring and to that end we are willing to offer the 2nd month for free to compensate you for part of your investment in flooring. You will retain the option to keep the flooring at the end of the lease if you would like to do so. In short we are offering a free month of rent at a value of $795 for the second month of a two year lease.
Does this seem reasonable?"

Their response:

"I wrote this over a week ago.'In order to sign a lease on this space, we will need to have confidence that the arrangement will allow us to recover the initial investment into our business, and to make a living operating our business out of that space. We also will need to know that the landlord will be an advocate for the success of our business.' I, now, have lost all confidence that either of you have the integrity, honesty, ability, or business ethics to be trustworthy landlords to my business. Your inability to communicate, your inability to take responsibility for improvements needed to the space, and your inability to honor verbal offers has eliminated any trust I would need in you as building owners and landlords. We are no longer interested in leasing from you."

Question : Where did we go wrong? Should we try to salvage this or did we dodge a bullet?

To start off - this is a small town  (3500 people) and there are not a lot of demand for small commercial lease space. I would really recommend against investing is small towns after this experience!

We have a vacant ~1000 foot units we are trying to rent for $795 a month plus utilities.  We are asking for first last and deposit for move in ($2385). This is the exchange: 

"I have read through the amended lease. Thank you for making the changes to the points of concern.
I appreciated talking with you this morning about the ability to launch our business in your space within our budget.
I have a proposal for you regarding your offer of reducing the upfront rent, or prorating the last months rent payment.
I purchased 60 boxes of commercial flooring each covering 18.1 square feet. Amazon has this flooring for 66.34 per box. The value of the flooring that I am ready to install is $3980.40. This would cover the entirety of both rooms of the space we are looking at putting our restaurant. My friend, a licensed contractor from, bid the installation of this flooring at $2.00 per square foot including baseboards, at $2000.00. That makes the value of the flooring installed $5980.40. He is willing to help me install the flooring. My cost for the flooring, and his help installing is $1600. So, value of 5980.40, we can get it in and installed for $1600.
I propose that the discount of our rent on the front end, and our security deposit, sell you the floor installed. Either a discount if $100 per month for the first 8 months, or $200 per month for the first four months would account for the first $800.00. The security deposit of $795 would be paid by us in the form of the flooring installed, and refunded to us contingent on our leaving the space acceptable when we vacate, whenever that would be. At that point the floor would be yours, remaining in the space. I have attached pictures of the flooring in its current condition. I will also be emailing a link to the flooring for sale on Amazon. I can send you pictures in the morning of the purchased flooring in boxes if you wish.
Thank you for considering our needs as we start our new business. I will look forward to seeing you this weekend to hopefully sign a lease. Please consider my proposal." 

My response: 

"Thank you for the detailed proposal. It's important to us that you rent this space and we would like to work with you. It's also important for us as a business to have a reasonable amount of security from a small deposit in case there is damage or other issues.

With that in mind it's reasonable for us to have a first, last, and deposit in hand at signing. The total would be $2385 this is a small and fair amount for a commercial space. We would be willing to help you with the flooring and to that end we are willing to offer the 2nd month for free to compensate you for part of your investment in flooring. You will retain the option to keep the flooring at the end of the lease if you would like to do so. In short we are offering a free month of rent at a value of $795 for the second month of a two year lease.
Does this seem reasonable?"

Their response: 

"I wrote this over a week ago.'In order to sign a lease on this space, we will need to have confidence that the arrangement will allow us to recover the initial investment into our business, and to make a living operating our business out of that space. We also will need to know that the landlord will be an advocate for the success of our business.' I, now, have lost all confidence that either of you have the integrity, honesty, ability, or business ethics to be trustworthy landlords to my business. Your inability to communicate, your inability to take responsibility for improvements needed to the space, and your inability to honor verbal offers has eliminated any trust I would need in you as building owners and landlords. We are no longer interested in leasing from you."

Question : Where did we go wrong? Should we try to salvage this or did we dodge a bullet?  

Offer:

 As the utilities for the building have continued to increase overtime we are transitioning the lease type for new leases to a modified gross agreement with tenants paying utilities based on the square footage of their unit.

Upon lease renewal at the end of the current lease the monthly rent will remain $395 per month per unit. However, monthly utilities will be paid by lessee at $31.93 per unit, which is half of the current utility costs for 2018.

In 2020 (third year) utilities will be paid by the lessee (Approximately $63.87 based on current). Over time this represents a very modest rent increase and comparable properties at 1+ dollar a square foot plus triple net we feel this is a great deal.

Utilities will be averaged on a yearly basis and costs are estimated per square footage of each unit. We are happy to share our utilities bills upon request.

A table of rents can be found below:

Regarding Unit #9:

This unit was rented at $350 to the last tenant. We planned on listing it at $325 plus utilities per square foot, which were $95.80 a month in 2018. We would prefer you have the unit and would be willing to offer a discounted rate at $250 per month plus utilities for a long term lease. We would also consider accepting $200 per month on a month to month basis while we search for a long term lease. However, the month to month lease at $200 would not allow for any modification to the unit.

Thoughts?! 

First, thanks to everyone for you comments !

@Alina Trigub Thank you for your suggestion - I have now connected to North Idaho REI group!

@Wayne Snyder Out tenants are businesses that want longer leases.

@joel 

@Joel Owens the building is 11 unit with 3 residential and 8 commercial units the upstairs unit is just an office that has been empty for a while so we are thinking about turning one of the 1 bed units into a 2 bed.  Based on the comprehensive commercial appraisal we when the property was purchased, all but 2 of the comparable commercial properties had tenants paying utilities. We do not think it makes sense to redo the electrical as it's just too cut up there are only 2 meters now for 11 units so we were going to assign utilities by square foot and base the monthly amount on an average of the last year.

@Scott Mac the last tenant was clerical - it would make a great yoda studio or work out studio - or be a great addition to the bar that is already down stairs  

@William Thresh very difficult  to add windows as it's fully in the basement. Do you find 2% is safe / keeps up with inflation for that long of time ? I was thinking of asking for 3.5% a year everything in my area seems to be going up like crazy.  I find that residential lease rates seem to increase way faster than commercial ( storefront) units however.