All Forum Posts by: Karl Dowden

Hello Tim, 

When you review the commercial leases, in addition to what @Kathy Henley recommended to review for, make sure that you know when the lease term ends (regardless whether there is a renewal or not). Another thing that comes to mind is whether there are is an early termination option for the rent a car business.

Regarding the salon, if you choose to let her "rent" a chair, I would be sure to include the right to terminate the arrangement at your convenience (so you can rent it to another commercial tenant in the event that you want to exit the salon business in the future). 

Good luck!

Disclaimer: The foregoing is for comment and discussion purposes only, should not be construed, and may not be used, as (a) legal advice, or (b) to abate in whole or in part any interest or penalties for, related to, or in connection with any tax or imposition by any governmental authority having or asserting jurisdiction, or (c) solicitation of retention or employment, or for the furnishing of legal or non-legal services, or (d) to create a client-attorney relationship or privilege.

Congratulations and welcome to BP!

Welcome to BiggerPockets. I'd recommend checking out https://www.biggerpockets.com/starthere to help provide an overview of the community.

There's plenty of information on the website (the Podcast and Blog posts are great) so there's plenty to learn. Setting up keyword alerts for areas you are familiar with and/or interested in investing in will help plug you into the local BP community.

Best of luck!

Do you know how much the current rent per square footage is for comparable commercial space in your area?

Are the tenants solid financially? 

If both answers are yes, perhaps he had tenants lined up and saw an opportunity to make a commission without having to spend as much time or energy as one "normally" would (i.e. putting up the signs and/or advertising on the MLS and likely splitting the broker commission).

There could be other issues, but I would assume getting the FMV rent is a top concern.

Best of luck!

Karl

Hello Kevin, 

Welcome to BiggerPockets! I would suggest that you would take the time to learn about setting up an LLC properly if you have the time. If you aren't aware of the costs associated with creating an LLC in New York, you could be in for one or more nasty (budget busting) surprise(s). Some general information:

The Articles of Incorporation is the document that creates the LLC. You may do this directly or you can use a "corporate filing service" such as Allstate Corporate Services or Blumberg Excelsior Corporate Services. These services are particularly useful for completing the publication requirement all LLCs are required to comply with. This publication requirement is what makes NY LLCs expensive. It can cost anywhere from hundreds to thousands of dollars to publish depending on what county of New York you incorporate in. The corporate services companies can provide estimates so you can budget accordingly.

The Operating Agreement for an LLC is the guidebook for how the LLC is to be operated. It defines out who the members (owners) are, what percentage of the LLC they each own and it is also an opportunity to identify what their titles and responsibilities are. It can help clarify what role you and your friend will play, which may be useful if any disputes arise in the future. This is where an attorney would be useful to help explore the issues are involved with the Operating Agreement and help draft language to address the issues.

Finally, you may also wish to consult with an accountant or CPA to understand and ensure that the LLC remains in compliance with any tax filing obligations you would have after creating the LLC.

Good luck!

Disclaimer: The foregoing is for comment and discussion purposes only, should not be construed, and may not be used, as (a) legal advice, or (b) to abate in whole or in part any interest or penalties for, related to, or in connection with any tax or imposition by any governmental authority having or asserting jurisdiction, or (c) solicitation of retention or employment, or for the furnishing of legal or non-legal services, or (d) to create a client-attorney relationship or privilege. 

Congrats on closing in on your first property!

1) FHA loans require a lower down payment (5% of the purchase price) compared to conventional loans (for which down payments typically range from 20% to 25% of the purchase price). I believe the interest rates are similar, however FHA loans also require that the borrower pays for "mortgage insurance" which will be an added expense to your mortgage payments each month.

2) I have heard of closing costs as somewhere in the range of 7% to 13% of the purchase price. Some portion of this, if not all of it, is typically covered by the mortgage, but that would depend on the lender and what terms you reach with them.

3) I would recommend trying to get on the phone with someone who administers the program to learn the qualifications of each program available (or if that person doesn't know, ask them to recommend contacting someone who does). 

Good luck!

Happy to help. Best of luck.

The security deposit depends on how financially secure the tenant and/or guarantor are. I usually see 2-3 months unless there isn't a strong guarantor (then it could go up to 6 months). This also depends on your friend's willingness to stomach risk (if the tenant stops paying and your friend has to spend money evicting the tenant and reletting the space, the security deposit may not be enough to recoup all the expenses and vacancy costs).

Rent abatement and TI are terms that depend on your market (and how incentivized your friend is to lease the space quickly). If you have access to term sheets for similar space in the area, you can gauge the average concessions landlords in the area give. If not, you could always state "To be discussed" and let prospective tenants propose the terms to gauge the market (however the obvious risk is that your friend gives way too generous concessions for the market based on a few initial offers by prospective tenants).

Disclaimer: This is from my experience in the New York City metropolitan area and the market in your area could be significantly different. Also not intended to be legal advice.

Perhaps you could look into obtaining an FHA loan, which would require only 5% down. Disadvantages are 1) you have to live in the property (for a certain number of years following the purchase) and 2) that you would be required to have mortgage insurance, which eats into your cash flow.

I'd recommend using Mr. Landlord's Debt Reporting Service.

https://www.aoausa.com/secure/mrLandlorddebtreport...

Good luck.