Many clients who buy residential property in Florida then go onto set up their own business and operate from home; however they soon find they cannot feasibly do this. There are also certain planning and local home owner’s association restrictions on home based businesses. Depending on the type of business and trade they may either decide to buy or lease a commercial property.
The majority of new business will start with a lease contract on a commercial property best suited to the requirements of the company. A commercial lease requires a thorough understanding of the industry by the Real estate representative as many hidden costs could be written into the agreement. The Landlord of the property will try and obtain the best price for the longest period of time with very few get out or break clauses. The responsibility of your Realtor who is representing you would to negotiate this more in your favor and in particular put in what is commonly known as a “break clause”. This effetely allows you to withdraw from the lease within an agreed time period or cost penalty, thus preventing you not being tied into the full lease term, maybe because of the need to expand into larger accommodation. You should never enter into a commercial real estate transaction without professional representation in the form of a Realtor and in many cases a Real estate Attorney. If something is written into the lease agreement that doesn’t mean that it has to stay there if you don’t approve of it. Everything can be negotiated with good representation.
With most office accommodation there are a number of options, a full lease or serviced offices which have all the telephone and electricity built into the rent. Each have there own advantages and disadvantages and your representative will review them in detail with you when you have found a suitable property. It is always prudent to view the potential property assuming growth in your business over a 5 year period as this will allow you to adequately size your space requirements. When you know the size you require the costing is relatively easy as most commercial spaces are priced on a square footage basis with and or options for utilities, post room, catering, cleaning etc.
When choosing an office space don’t just review how it is laid out when you see it, as that was what worked for the last tenant. Most landlords will include a “build out” which means within certain cost and limitations they will remove or replace internal walls, replace paint, carpet, furnishing and kitchen equipment. A lease term is negotiable and is normally anything between one and five years, obviously the longer the lease the better the rate you will get.
It is important to review the local zoning in particular if you business involves storage of materials, outside yard equipment, outside machine maintenance and the use of dangerous or hazardous materials. If you able to get a sub lease clause written into your lease you can allow another vendor to rent space from you on a shorter tenancy while your company grows.
In order to be approved by the Landlord certain financial information needs to be submitted for review. If you company has been trading in the USA audited accounts are required, if you company has been trading outside the USA audited accounts still required but a higher security deposit maybe requested. Before you hand over any documentation make sure you have signed a “Confidentiality Agreement” so your records will not be viewed or used by any other party to the transaction. Remember location counts for everything, it maybe very cheap because it is in the wrong part of town for your requirements and maybe not in a desirable area. Consider what your client’s first impression would be when coming to you to do business. Make several visits to the location at different times of the day and night, a sleepy neighborhood could become very lively when the sun goes down with nightlife. Investigate crime figures and reports within the vicinity and drive around to look at the condition of other existing business for vandalism and graffiti; this can help consider possible maintenance costs.
In most cases your professional representation through your Realtor will assist you with their local knowledge that can best direct you to a property that matches your needs and financial criteria.
If you are purchasing a commercial property other considerations need to be made such as the “Capitalization rate” which is a calculation ration that is used to measure of how fast an investment will pay for itself in net cash flows. This is generally carried out by dividing the positive cash flow by the purchase price which equals the capitalization rate in a percentage format. For example, if a building is purchased for $1,000,000 sale price and it produces $100,000 in positive net cash flow (the amount left over after fixed costs and variable costs are subtracted from gross lease income) during one year, then:
$100,000 / $1,000,000 = 0.10 = 10%
The asset's capitalization rate is ten percent.
A market cap rate is determined by evaluating the financial data of similar properties which have recently sold in a specific market. It provides a more reliable estimate of value than a market Gross Rent Multiplier since the cap rate calculation utilizes more of a property's financial detail. The GRM calculation only considers a property's selling price and gross rents. The Cap Rate calculation incorporates a property's selling price, gross rents, non rental income, vacancy amount and operating expenses thus providing a more reliable estimate of value.
Conclusion
Never enter into a commercial real estate transaction without professional representation from a Realtor and an Attorney. Always review the location at different times to get an idea about the neighborhood after dark. Review in detail the costing and or the capitalization rates. Plan for five year grow when looking at office size and try to incorporate a break clause in the agreement.
Testimonials
“We were introduced to John McLoughlin by a UK based Estate agent as John was considered as an expert in the area that we were looking for a property. He assisted us finding our dream home and was able to negotiate a very good price for our long term investment. Throughout the process we found his services to be very professional and we will be using him again for our next purchase.”
Bill & Lan Edwards (UK) Purchase in Windermere Florida
“We were referred to John McLoughlin by another UK South Florida based Realtor as we wished to purchase in the Kissimmee area. Johns experience in construction & real estate quickly assisted us identify properties that were not suitable for our needs and he found us a property that matched our criteria perfectly, we would not hesitate to recommend John”
Chris & Debbie D (UK) Purchase in Kissimmee Florida
Qualifications snapshot
- Member of The National Association of Estate Agents (UK)
- Member of The Orlando Regional Realtor Association (USA)
- Member of The British American Chamber of Commerce (USA)
- Fellow of The Chartered Institute of Building (UK)
- Fellow of The Association of Building Engineers (UK)
- Certified ASHI Home Inspector (USA)
- Certified Mold Inspector (USA)
- BSc hon`s Degree Building Surveying (UK)
- NEBOSH Heath & Safety Advisor (UK)
I now assist many British, European and American clients find their long term financial investment property in Central Florida. I have acquired a worldwide network of referring partners from Estate Agents in the UK to financial advisors in the Middle East.
Please feel free to check any of my qualifications and references with the following worldwide professional organizations and regulating bodies.
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