What Should You Do When a Tenant Asks for a Rent Reduction?

If you own commercial real estate, at some point in time a tenant is going to ask you to reduce the rental rate for their lease. This is never a fun situation to find yourself in so you want to be prepared for when the time comes and you have to deal with your tenant asking for a reduction. The number one thing is to remember it’s a business transaction and try to keep emotions from getting in the way, then investigate as to why your tenant is asking you for the reduction. There are cases where the tenant may be looking down the road and sees a potential for a slowdown in their sales and wants to prepare or they may just want to try and get a reduction. No matter the reason it’s best for your investment if you can create a winning proposition for both yourself and your tenant.

The first thing you want to do is perform your due diligence, make sure you know the current market rates for your asset class and pull their lease to know how long of term they have left and if there any increases in rent set for the near future. The operating statement from the past two years broken out by month and a current Balance Sheet should give you the story of what has been happening and where the company is today. Check to see if this may be a seasonal change, bad business decisions, etc.; and be prepared to offer them advice on what you see may help them get back on track. If you have decided to work with them and try to keep them in your building you want to do your best to help them get their business back on track and performing at peak level. You might be able to offer insights to improvement as when they are in the middle of operating their business they may sometimes not see the full picture and if you can help them it’s best for everyone.

If you make the decision to offer a rent reduction and work with them to keep them in place you can offer them a few different options. (depending on their lease term)

• Temporary rent reduction for a certain amount of time;

• When looking at your lease rental increases, consider not increasing this year;

• With the rental increase maybe forgo this year and double the following year;

• Consider not increasing their rent, or even reducing it, but take a percentage of their sales for a certain amount of time

• Blend and extend- forego some rent for a certain amount of time and extend the lease and add the reduction to the extension.

Keep in mind - your goal is to create a winning proposition for yourself and your tenant. Understanding their business helps go a long way.

Critical Steps Too Becoming A Top Commercial Real Estate Agent

The steps I am about to give you are time tested and proven over the years by many successful commercial real estate agents.

These steps are a great way for you to build your business.  These steps are worthless if you don’t create a structure that allows you to execute these steps on a regular basis. Find a quality CRM, put your head down and get to work.

1)                    Cold Calls - I recommend 100 calls per morning to a targeted group- either to an area or to a specific asset class, with every call you need to bring value…tell them something about the market in their area or a specific asset they may have interest in hearing about. Do not call and just leave a voicemail to call you back.  If you don’t have their emails be sure to ask for them and immediately but them into your CRM to add to your email list;

2)                    Social Networks - Most commercial agents frown on this, however, it’s a critical part to your branding. Create posts twice per week that have critical information about your market (create value for yourself).  Don’t just post about business though, also mix in some personal posts.  After all, people like to do business with people they know and like;

3)                    Sphere of influence - You need to reach out to friends, family, past coworkers and clients on a regular basis, there is no worse feeling than sitting next to a friend and having them say “we just relocated our office too………” your first question to them is, “who represented you?” and they respond ah man, I forgot you were in the business…. Email your sphere of influence at least once monthly, add something personal and as always something that brings value.

4)                    Reviews - In this day and age, most people immediately google what they are looking for, or who they are working with. Make sure you ask your clients to write reviews on Google and Facebook for you, it will make it easier for potential clients to find you and gain their trust that much quicker.

5)                    Email Blasts - I would recommend doing an email blast (in the beginning every two weeks) that is personalized and (again) brings value to everyone in your market (clients, potential clients, and networking contacts).

6)                    Block Program (Also called Canvassing) - Every two weeks walk a specific community (best utilized for office or retail) and get to know the people working in the stores or the offices, they will begin to trust you over time and you will learn a lot about the area.  Once per month you should also call the ownership of these properties and keep them informed as to what is happening in the area; do not gossip... just real data about who is moving out of or into the area and on what is happening in the communities their properties are located.  By doing this you become the “go-to” expert in this area for commercial real estate.

In the end it all comes down to being the professional to go to in the community, find ways to create value for yourself, and the last (but not the least) tip to be successful in this business… Treat this like a business, show up, do the work, out work and out perform your competition and you will soon reap the rewards.

What to Consider when Buying a Single or Multifamily Investment?

Many first time investors have the idea that their first investment should be a single family home due to the cost of entry and ease of management, however, this may not always be the best path to go down. One of the main issues that you have to consider is the fact that if the single family homes goes vacant you will have to cover the entire mortgage until you find a new renter, now if you have a duplex, triplex or fourplex that mortgage will be spread out across more units giving you some cash flow to help with the mortgage.

Another reason the first time investors tend to like the single family homes is that you can put a lot less down then you can on a commercial loan and the residential loan can be amortized out over the life of the loan. Residential loans can be on properties that have 4 units or less and can be acquired with as little 5% down, however, commercial loans are on 5 units or more will require at least 25% down and you will need to show a business plan plus as well as management experience and cash flow. When shopping for a commercial loan, be prepared to answer a lot of background questions regarding the property. Some of these questions include:

Who pays the utilities?

What types of maintenance are required?

Numerous questions regarding cash flow will also be asked. Commercial mortgage borrowers should be prepared to provide proof of business revenue and profits as well as a detailed plan for how the commercial property will generate enough income.

Where an investment in a residential property can be attractive is in the maintenance costs, you will have only one tenant in stead of multiple so it makes sense that your costs should be less providing you have a good tenant; however, multifamily properties typically afford synergies of scale (one yard, roof, etc…) so your overall cost per unit vs. rent will be lower.

When deciding on which direction to go with your first investment really look at your appetite for risk as having a home go vacant for a few months and having to cover all the expenses on your investment can be a big drain on your savings.