All Forum Posts by: Carl A.

Hi all, thank you for all of the comments.  It's great to read about all of the different opinions and options.  

Here is a little more information about the dental practice...  It is very large group that recently became part of a very large holding organization with total yearly revenues of $900M.  Each individual practice doesn't have any say in this issue, and I'm dealing directly with a high-paid attorney at their HQ.  On the good side, before this disaster they never missed a rent payment and were actually very reasonable to deal with.

After considering the different options, I've decided the best approach right now is to just agree to their terms.  The reason is, they have made it very clear their offer is non-negotiable and I'm sure we would end up in court if I wanted to challenge them.  The money I'd spend (not to mention the headache) would most likely far outweigh the lost 3-months' rent payments.  Fortunately, there is another tenant in the building who *is* still paying rent, which covers all my expenses so at least I'm not *losing* money.  

One thing this has taught me, however, is the downside of renting to a large corporation. In the past, I've always only heard about the *benefits* of renting to a large corporation - stability, long-term leases, reliability.  However, now I realize that there is a dark downside - they can throw a high-powered lawyer at you and make demands that a small investor doesn't have means to fight against.  If I were dealing with a small practice I could at least sit face-to-face and negotiate.  In this case, I'm dealing with a billion-dollar company who has the attitude "go ahead and sue us if you dare."  Something for other investors out there to think about...

Hi all

I have a commercial rental with a large national dental tenant (they have about 200 clinics nationally).  They sent a letter out that is summarized as follows:  Due to the forced shutdown, we will not pay rent for 90 days, but we will offer a lease extension for 90 days at the end of the term, and there is nothing you can do about it.  They also included a lease addendum for me to sign to agree with those terms.  I’m in Michigan and there is no order prohibiting landlords from collecting rent. 

Is anyone else in this situation and what are you doing?  Thanks in advance!

Advice needed! I purchased a small office building in Oct 2019 with two tenants. One tenant is a small pharmacy who signed a 5-year NNN lease starting March 2019. According to the lease, the tenant pays a base rent plus estimated CAM charge each month. At the end of each year, the landlord provides a summary of actual CAM charges and invoices the tenant for any outstanding balance. The monthly CAM payment can also be adjusted at the landlord's discretion. In addition, the lease says that the base rent increases by $100 every 12 months. This is all very clearly written in the lease.

In December I sent a letter telling the tenant that the monthly CAM payment will be increasing from $620 to $780 per month as the 2020 budget shows a substantial shortfall.  The tenant did not respond to the emails so I tried repeatedly to call and finally only got ahold of her by calling from a different number.  She was very upset at me for “raising the rent” and said that her business is not doing well and she can’t pay the additional amount.  She acted shocked about the base rent increase and the additional CAM charges.  She said she will only pay the amount she was paying previously and no more. 

Any advice what to do?  Should I try to negotiate with her, or lay down the law and tell her to pay or get out?  

Just to clarify the “uncapping” process in Michigan.  There are two values determined by the assessor for the property: the “taxable value” and the “state equalized value” or SEV.  The SEV is pegged at 50% of what the assessor says your property is worth, and the taxable value is what determines your property taxes.  Your taxes are the millage rate times the taxable value.  The SEV can increase without limitation yearly, whereas the taxable value is limited to 5% per year or the inflation rate.  After a few years without changing hands, the taxable value can end up being much lower than the SEV.  When the property is sold, the taxable value is “uncapped” and becomes reset to whatever the SEV currently is.  It is not dependent upon the selling price in Michigan.  (Unlike California for example where the taxable value is just set to the sales price.). So, if you want to figure out how much your taxes will be after you purchase a property in MI, you just need to look up the millage rate for that area and check the current SEV for the property. 

One more comment I forgot to add.  If you are looking at Detroit to invest (or any part of MI for that matter) make SURE to carefully analyze the property taxes in that area.  Michigan has some of the highest property taxes in the US, and they vary wildly by city. And the non-homestead relates are up to 50% higher than the homestead rates. For example, Detroit non-homestead rate is around 8.5% of the “taxable value” (which is supposed to be around 50% of “appraised value”).  So if you acquire a property that ends up being appraised at $150k, you could be paying up to 8.5% of $75k or over $6k per year in property taxes alone!.  Now, luckily many properties in Detroit are appraised with very low values for now, but I am concerned about the future as property values rise and the taxes slowly eat away at the cash flow.  Not trying to be negative, just something to watch out for and take into account in your future cash flow analysis of a Detroit property...

@Pam Church: The weather is always great in Michigan!!  :). Seriously though, the weather is beautiful through end of Oct usually and may occasionally start dusting snow in November.  However, if you are thinking of investing in Detroit I’d actually recommend visiting in the winter to see what you will have to deal with.  The winters aren’t always easy on properties and there may be unplanned expenses you don’t think of if you’re not used to winter weather.  If you do visit I can connect you with my buddy who moved down to Detroit and is slowly acquiring and rehabbing properties.  He’s already completed three city blocks and is preparing to acquire another few blocks (this is something unique to Detroit - you can purchase whole city blocks in some places!)

So, I live 45 minutes from Detroit and have been spending a lot of time there lately looking for investment opportunities.  As someone who lives in the area, my advice is to NOT invest until you have visited the area and have done a LOT of research.  There are great opportunities, but it is a HUGE city (the city itself is 143 square miles and the metro area is 1337 square miles). The area can turn from "great", to "good", to "get me the he!! out of here!" in the matter of a few blocks.  I have a good friend who has started a development company there and is turning a decent profit, but you have to REALLY know what you're doing...

I currently own my personal residence outright, and am looking to purchase a $700k investment property and need a $300k loan.  There are two options:

1. Take a commercial loan @ ~5% on the investment property

2. Do a cash-out refi of my personal residence @~3% and use that money

It seems like #2 is better since I save a significant amount of interest.  But am I missing something that I should be considering?   Thanks!

Thanks Mike!  I'll take your advice and find a new lawyer who will review the broker's agreement.  I'm not that keen on my current lawyer anyway... :)