I keep waiting to get a call from one of our new tenant - he hasn't moved in yet and he is a new hire with the National Park Service. Hope he is still employed! We consider Park Service, Coast Guard, 'real' teachers and nurses as Tenant Gold and in fact he is replacing another NPS employee who got promoted and moved from the area. Hope SHE is still employed too!

I agree with everything D O G E is doing but as with any transition, there's some uncertainty as to where this will all pan out for a lot of people.

NE, ever thought about 1031 exchange into quality commercial real estate? No doubt you've heard me on my soap box regarding this, and I think you're probably at the point in your REI career that this could be a great move. Just think....

No worries about ESA or "service dogs".

No worries about rent moratoriums.

No worries about rent controls.

No worries about being unable to pull credit/background checks.

No worries about FHA laws... because it's NOT housing!

Business owners usually already OWN their home, so that presents an asset one can lien a judgment against.

The site is their livelihood, which is a huge incentive for them to pay in full, on time, all the time to avoid losing their business location.

Bought right, these "metal boxes with concrete floors" offer ultimate flexibility, durability, and are easy to work on compared to residential real estate.

I'm telling you, buddy.... it's worth a look!

Or, sell everything and put 2 Million in a

Awwww yeah, NE! Tell me all about it.

I think you'd enjoy the flexibility and creativity that comes with being a commercial landlord. Most traditional mom and pop residential landlords never consider how many rules and regs they have to comply with DISAPPEAR when you rent out commercial space. Even our most liberal Lefties haven't decided that businesses get special rights... yet.

Another other cool thing: improvements are done on the tenant's dime and stay with the property. At three of my automotive shops, the tenants completely renovated the office spaces to look like something you'd expect to see walking into a big national automotive chain store like Firestone Tire. One unit didn't even have an office, and this guy built out the entire thing, framing, drywall, electrical, HVAC line, the works! Looks great! Probably $7000-$9000 worth of labor and materials, which now does two things:

1) Increased the value of my property.

2) Ensures he will want to be a long-term paying tenant.

When was the last time a residential tenant did something other than poorly paint a bedroom black? *grins

Btw, I only allow commercial tenants to do work on properties, I require a full scope of working including drawings, and I carefully vet anyone who wants to do work. This guy had a construction business previously, and a buddy still in the trades who was able to pull a permit for him. He also put me in touch with several of his past clients. I got to see his work first hand before approving his project. His is a skilled craftsman and did a great job.

At another place (retail "duplex") I had a smoke shop move into one side that is about 1500 sq ft. I was confident in these guys because they already owned 3 other shops in town and were expanding. I toured one of their shops as part of my screening process (i.e. the 2-minute in business inspection!) and was impressed. The place I rented to them was a big, open void with oil-stained concrete floors, poor lighting and painted a bad color. When I walked in it after they were done, holy cow! LVP flooring and commercial grade carpet. Beautiful display cabinets. All brand new, bright LED lighting fixtures, great paint color scheme that would be easily adapted to many different uses in the future. These guys asked for a 3 year lease. You bet I jumped on that! Guessing they will want to renew, and with as much $ as they put into that place and establishing their location.... I figure I can get premium rent. They won't want to move.

Imagine someone besides YOU doing quality work on your property, while paying you rent, and making your rental more valuable, plus all the work they do ensures they will be a great, long-term tenant!

You're in the right "zone" though.... large spaces that are made of relatively strong materials, with plenty of room to subdivide.

I have to thank you, NE. Responding to this post cooked off an idea about something that should have been obvious, but writing out my experiences here gave it a fresh perspective. I've not 100% lined it all out yet, but basically comes down to buying a building that "needs work" in a good location, finding good businesses to move in there and fix it up, locking them into good leases at rates that would be attractive to investors or perhaps the business owners themselves as owner-occupants, then selling the property and 1031 exchanging into another.

Sort of a modified version of the residential BRRRR (Buy, Renovate, Rent Out, Refinance, Repeat), but for commercial where all I do is the Buy, Rent, and Repeat parts and the tenant does the Renovate part. No "refinance"... just recoup the funds through the building sale. Maybe do it on a Contract for Deed.

Maybe call it BRRSR: Buy, Rent Out, Renovate (Tenant provides labor and materials or hires a contractor), Sell, Repeat.

NE, based on the hopeless sfr landlording situation that you have described over past years, Move yourself and your business! Do not invest another dollar in that impossible market. No commercial, no residential. Successful commercial buildings require successful businesses. Successful businesses require people with disposable income to spend.

If you can’t bring yourself to relocate, quit!

Hey Sid,

I can only speak in regards to the small commercial buildings in my town that you would probably be renting out. Some of these small buildings are free standing (CPA's rent them) and others a part of small multi-unit strip shopping center. I drive past these small hole in the wall commercial units every single day. And I do agree with everything you have said about the lesser hassles of being a commercial landlord.

HOWEVER,...when these places become vacant, they tend to stay vacant not for months, but for YEARS. Now that could mean the landlord is a lazy fool and does not market his vacancies very well. But the fact remains, I see way too many commercial spaces with For Rent signs in the windows but no tenants for months and more months.

That is true here, too, Roy. I've seen one local business move four or five times in the years we've been here, and his former locations stay vacant for years. He's not a walk-in, so moving locations doesn't affect his business (sells gas fireplaces and such so people have to search him out.) I think he moves whenever they raise the rent at all.

We watched one major commercial complex - multiple connected business locations - stay empty for years and years and years. It had one or two anchor tenants but all the bread & butter units stayed empty. It changed hands and more units are full now with nice stores but still not all - some have been empty 20 years.

We know a guy that owned a beautiful commercial location that stayed empty - and for sale - for decades. Now it's a gun range and a cheerleading gym (amazing neighbors!!?) so probably those tenants are not going anywhere because of their investments in improvements. But several units are still empty after 20 years.

Sorry to hear you are losing a good tenant.

WMH, I think I know the business you are referring to. I went in their little yellow office to talk to her about gas logs when we first bought the condo. The smoke smell almost killed me before I could get out. The brown office at the new location probably smells as bad now.

NE, what do you think of this;

What if, instead of offering a free month of rent, you offered $500 or whatever off of the move-in funds? When you do the lease signing take the $500 or whatever off of the security deposit instead of the rent. If you take $X off of the rent, you lose that. If you take $X off of the SD, you technically gain that. If your tenant leaves, and they don't damage the place that bad, then you don't have to return as much SD. If they do leave the place a mess, you're really no worse for the ware and can go after them for the remainder of the damage, because your lease will show that they only paid $Y as the SD.

In 1997, things were tough, economy sinking from the highs of 1990--a 7 year decline cycle. I had to learn how to limit my losses and help persuade tenants to stay.

My 1 bedroom apartments in Korea-town were being rented for $500 per month. But no-bedroom units on the block were only going for $375/month. SO I got 58 notices tenant were moving from my $500 1 bedroom to singles going for $375.

SO I made a deal with everyone. Instead of paying the moving cost. Turn off and restart services (phone, cable, gas and electric), I will lower the rent to $375 per month. But they had to try to rent out a room to a roommate. This way each would only pay $250 a month.

I have been out in your neck of the woods NE.

How well do you think a drive thru beer distributor or an auto body shop specializing in deer collisions would do in that commercial building.

Hmmmmmmm people drink beer in rural Pa? Fewer hunters, more deer and more cars = a very bad day for Bambi and a bad day for Ray (two weeks ago)

NE, you would be welcome in South Carolina, or any other red state.

SC so far has steady rents and tenants...because people are moving HERE, not AWAY FROM HERE.

Meanwhile, in BLUE states, they are building tax payer funded Cabrini Green style housing in small towns and cities.

Gevans,

NE- you wont' regret going commercial. I'm having a Jimmy Johns go in my retail suites. Kind of pain dealing with their contractors, but its better than any PITA tenant I have dealt with.

Homer, get with it.

With 2 million you can negotiate for the other 1/2 %.

Compounding in a Michigan C.U. = for NOW !

I am watching a couple commercial buildings in my small resort town. They flooded in 2011 (Irene) and have VACANT ever since. Numerous attempts to repurpose the buildings all shot down by the town.

NE,

That would have me scratching my head too. Different pot of money and budget?

They say vote local, it's the only time it really counts.

Ken, I thought FEMA was federal.

Either way if enough of the pot gets stirred up there might be a trickle down to state and even possibly local.

I agree that if the area is well known to have the issues then the people should be on their own.

But where does the line exist on what is a known issue? The hurricane did some things that were atypical and wiped a lot of unsuspecting people out.

The fires on the other coast were terrible. But how often do we hear about fires in that region?