Commercial Realty: What I Learned from Renting an Office

by JT McGee

I haven’t discussed it very much on this blog because it is mostly irrelevant to the theme here (not sure there really is a theme any more :P), but I run a reasonably successful internet marketing business. The business is 99% B2B, and 100% numbers driven.

Using a combination of SEO and SEM marketing practices, my business seeks to provide business owners with marketing strategies that cash flow from day one. The less simple story is that we use a proprietary algorithm developed over the last eight or nine years based on market size, demographic data, and willingness to spend to find available channels for profitable advertising.

Mostly limited to financial-related companies, we’ve really come back with vengeance after 2008-2009 nearly left me completely broke. Man, the upside since the financial crisis has been outstanding, but the downside was absolutely horrendous. Have I mentioned I have gray hair at 21? Yeah. :-/ Luckily, side income from writing gigs elsewhere did supplement the downturn.

Anyway, after growing back out of the adspend recession, I wanted to further solidify my business and get an office for it. I had been, up to a few weeks ago, working entirely from home, and it wasn’t cutting it any more.

The office I'm leasing for an online business.

I had to buy a new desk for the office. This is shortly after putting it together and having moved absolutely nothing in. Pretty soon I'll post updated pictures after I get settled in.

Why I didn’t like working at home

Working at home sounds like such a luxury, when in reality I’ve found it everything but. What I didn’t like:

Dividing time – This is the absolute hardest part of working at home. While working I would often look to my left to a pile of dirty laundry. Soon enough I’d start to get the urge to do a load of laundry while I worked. Okay, so that might take 10 minutes tops to set it and forget it, but then on the 50 foot walk back to my room I’d find hundreds more things to get in the way of productivity. Besides, if I’m doing laundry from 10AM-11AM, for example, does that mean I have to work until 6? More importantly, if I work at 6-9PM, does that mean I can goof from 8-11 the next day? See, it’s hard!

People – This goes with dividing time, but with a different perspective. I still live at home with the ‘rents; it works well for the budget and affording school, and I do as best I can not to burden them financially or otherwise. At any rate, they do an exceptional job of realizing when I’m in “work-mode,” as does my girlfriend, but there’s just something about getting away from a home setting that does wonders. The thing is, though, that I think there’s a natural tendency to think that people who are self-employed can do whatever they want, whenever they want. When I’m in “work mode,” I’m going to be doing work and avoid other things as best I can. I don’t want to be taking personal calls, much like those who work a 9-to-5 shouldn’t be taking personal calls on company time at their jobs. This gets lost on people–the office solved that, even if it’s because I won’t answer personal calls no matter what.

Having balance – I am an absolute workaholic; I can say that with certainty. My desire to work 24/7 on what I love has led to strains in relationships of all types—family, friends, the significant other, and even on occasion, school. I’d drop anything, all the time, to go do what I love most: working on my business, and working on new businesses.

Routine gets old – I’m ADD to the core. In a lot of ways, it has helped me, and in a lot of ways it hasn’t. I’m prone to picking something up, starting it, but never finishing it. Or starting a new project, spending hundreds of hours learning everything about it, and then just giving it up because I find out that what I truly enjoyed wasn’t the project itself, but the intellectual pursuit of a particular project. I can’t change the way I am, and I wouldn’t even if I could. If I weren’t the way I am, I wouldn’t ever develop an interest in both finance and marketing—two subjects where there is always more information to be consumed on an almost daily basis. But “who I am” sure does get in the way of “getting stuff done.” There are very few things to distract me in my new office.

Legitimacy – I couldn’t believe the number of people I know—friends, but not clients—who thought an office to be some mark of supposed profitability or legitimacy. Most aren’t business owners, and they’re definitely not working online, but it amazes me how people see an office as if it’s some massively awesome way to “go legit.” I think it’s silly, but that’s marketing—it’s not about what I as an individual think, it’s about what the aggregate thinks.

Most of my clients have known me for years, and I don’t need to “impress” them–the other day I was on a video conference wearing a summer camp T-shirt from third grade LOL. I don’t go looking for new business, either, so I can’t give you any input on whether having an address will help on that end. This is largely a moot point for me, but it may not be for you.

Shopping for an office: Tips and Tricks

Renting an office for your business doesn't have to be hard.

By: MoneyBlogNewz

I’ll admit that I actually started looking for an office nearly three years ago, but after making only a very broad look at the commercial real estate available in my area, I wasn’t very satisfied with what was up for rent. It was either too expensive (usually because it was too big; I run a one-man office) or too far from home.

I solicited a few quotes at that time, and never heard back from most people. From this, I have concluded that real estate brokers are lazy (they are) and don’t want to bother with small money people like myself.

It wasn’t until this year that I contacted a friend of mine from high school about leasing an office. His father owns the best real estate business in my area—they seriously own or broker every piece of commercial real estate worth owning—and I was a little worried that they wouldn’t want to bother with me either. I was wrong.

Get a broker – Don’t start shopping by yourself, and don’t even think about calling up or emailing a real estate broker. They’re lazy. Instead, show up, in person, and get the job done. That, or go talk to someone who you know is close to a commercial real estate brokerage. I couldn’t be happier that I sent my friend a message–on Facebook, no less–and that they took care of me from then on out.

Know your lease types – There are single, double, and triple net leases, and also gross or “all-inclusive” leases.

  • Single net lease – The tenant is responsible for rent and property taxes.
  • Double net lease – The tenant is responsible for rent, property taxes, as well as building insurance. The lessor pays for building maintanence, and upkeep.
  • Triple net lease – The tenant pays for rent, property taxes, building insurance, utilities—practically everything, to be honest.
  • Gross lease – Everything is paid for by the lessor, and the tenant just writes a monthly check. I signed a modified gross lease, where I get my space, utilities, and internet connection paid for by the lessor, and I have to cover insurance for the property I store in the building.

Know your risks – I signed for a small office in a building made up of a number of small offices. I have a door and all, but there are, at this time, I think about 8 other businesses operating in the premises. Originally, I didn’t want to sign for this property because it was being marketed as a net lease, where I would have to pay for property taxes in addition to my monthly rent. Not cool. See, if I have to burden a proportional part of the property taxes, they have little incentive to fill the space to keep total costs low. Alternatively, with a gross lease, I have zero-risk in rising property taxes. Ballin!

Know that everything is negotiable – This is the most important part. Everything in commercial real estate is negotiable, especially in this market. At the end of the day, I signed onto a 12-month lease, with two, one-year options that will allow me to continue leasing the property at a price adjusted for CPI-U, the consumer price index for urban workers.

Thus, if my lease expires in 12 months and I don’t want to renew, I don’t have to. If I do want to renew, I can at my current lease plus CPI-U. The current rate of inflation according to CPI-U is like 3.6% since last year, so I would pay 3.6% more for the next 12 months if I choose to renew (and if the price level stays similar). I have this option out two years, meaning I can stay here for 3 years with a largely known monthly rent.

Accessing your office – This is more important for small office space, but I looked at a few other offices that were in offices of other companies. I wasn’t impressed. For one, I don’t want to be a business in the middle of another business. Number two, I didn’t like that I could be there only during office hours. At my current location, I can come and go as I please, as I have an electronic key to get into the main doors, and my office has an individual lock. I am a college student, so the ability to stop by the office after night classes to go pick something up/print something off/whatever was, and is, very important to me.

So how much do I pay?

That’s personal. Nah, just kidding—I want you to know so you can see how crazy the commercial real estate rental market is right now.

I have an office that:

  • Is in a highly-desirable part of town, with very-low crime
  • Is in a medical services and technology building with people who aren’t shady
  • Is less than 2 miles from my home
  • Is only 125 sq feet (it has a window, at least!)
  • Includes the cost of utilities, 6mb/s internet access (I speedtested it 😉 ) and upkeep for the general area not including my office

And I pay a whopping $131 per month. Yeah, not joking. I pay $131 per month, and had to put up only $131 as a security deposit. So I pay only $1.05 per sq ft, per month, with all utilities and related costs included. It is PHENOMENAL.

Note that I do live in a very inexpensive part of the country. However, I can say that there are probably spaces like this near you for a similar, geo-location adjusted price that should fit your fancy. At this price, and with the convenience, I’ll never go back to working at home again.

Ahh, balance…

I tell myself that I can work only when I’m at the office, and in doing so, I resist (almost) all of the temptation to slave away at home. Finally, for once in my life, I have balance in work and life, and a necessary physical barrier that keeps me from working from 6AM to 2AM just because I want to.

All in all, I’m more productive, happier, and healthier all for the cost of $131 per month, or right around $1,600 per year. It was, and is, an absolute no-brainer.

So there you have it: the ins and outs of renting small commercial space for an online business. I wish that someone had told me all this before I went looking, so I’m glad to have written this for all the people who are looking to rent an office for their online business in the future.

{ 25 comments… read them below or add one }

Squirrelers May 14, 2011 at 15:28

Seems like a very cool setup. Not that I’ve scouted commercial real estate much, but that price per square foot – and price per month – seems fantastic. Have to say, I totally see how it can make work much more productive. Personally, I know I work better when away from home – even if in a coffee shop or library. Less distractions than home.

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JT McGee May 15, 2011 at 10:22

Absolutely. I infrequently went to a Barnes and Noble for a different environment. It worked reasonably well, but I still knew that I wanted my own space. Had I known that this location was available before (it probably would have cost twice as much pre-recession, but that’s still reasonable) I would’ve moved in a LONG time ago.

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Invest It Wisely May 14, 2011 at 16:57

That price almost seems like a steal. I think I can see many of the downsides of working from home and there are many things to appreciate about an office space. Home does have a lot of distractions.

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JT McGee May 15, 2011 at 10:23

Distractions are plenty, and the balance between work and life doesn’t really work out all that well. I’m happy in the new space–it’s everything home wasn’t.

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No Debt MBA May 15, 2011 at 07:47

I also tend to work better away from home but I think it’s because I do it so rarely that it’s a really effective change. Congrats on your new office! Just over $1/sq ft is a great deal.

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JT McGee May 15, 2011 at 10:24

Yeah, definitely–home can seem like a whole new environment if you don’t work from home all that often. But work from home a few days a week and I imagine that all the things that make it awesome become all the things that make it a pain in the rear. 😉

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LifeAndMyFinances May 15, 2011 at 08:38

Yeah, that is a steal of a deal! It makes me want to go out and look for an office. However, since I work an 8-5 job already, I don’t think my wife would particularly like me coming home at 9PM everyday from the new office.

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JT McGee May 15, 2011 at 10:27

Yeah, it definitely wouldn’t work in combination with a 9-5.

I didn’t mention something that I probably should have: an incubator. There’s an incubator in my town that offers 20-40 hours per month of office use for people who are launching a side business/only want a meeting room for talking to clients. It seems that something like that might be suitable for you should you want to get out every once in a while on the weekends or something. The cool thing is that even if you rent for only 20-40 hours per month, you still get the benefit of having a permanent mailing address, which is great, in my opinion.

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Car Negotiation Coach May 15, 2011 at 10:03

JT- I wish you wrote the “shopping for an office” part for my blog!

On another note, I’ve been working from home for years and face many of the same challenges as you. I’ve found that you lose a lot of people skills too….I’ve become a cranky old curmudgeon (I use the “old” part loosely….I’m still in my 30’s). Anyway, whenever I visit clients, I have to try super hard to get my old people skills back and re-learn small talk and being nice to people :).

Recently, I’ve toyed with the idea of coworking or leasing, but in my part of the country I’d be lucky if I found a place for 10 times what you paid, and I just can’t justify that to myself….but with a little one running around the house now, I may have no choice!

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JT McGee May 15, 2011 at 10:33

I should have. Truthfully, I wrote this yesterday, and then couldn’t wait until Monday to publish it. Some things like this just get me too excited. I haven’t even proofed it yet–so I’m hoping when I read it again later that it’s not insanely hard to read. One and done! 😛

All I can say is to go look. I had been stuck on a $400 price point for so long before I spoke to a commercial real estate broker and found far more properties than were listed online. After that, it became a question of finding one I wanted rather than finding one at the right price. I ended up looking at a total of three even in my small town. I’d imagine that in an area with higher population density there are probably quite a few small spaces for rent at relatively low price–most businesses simply can’t do with 125 sq ft.

I think there’s a 250 sq ft office available in this same building, but after thinking about it I realized I’d probably just throw a bunch of other distracting things into it and have the same environment I’d have at home. I never thought that being cramped would work out as well as it is. I don’t have enough room to load it up with all the lazy things I’d like to put into it. If things go well, maybe I’ll have to move to the bigger room and put a pool table and couch in it. Ahh…yeah–now that’s what I call an office! 😛

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Jacob @ My Personal Finance Journey May 15, 2011 at 11:18

What an awesome price! $131 per month is totally worth it!

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JT McGee May 17, 2011 at 10:16

Exactly what I said, LOL.

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Invest It Wisely May 15, 2011 at 18:31

I’ll have to look at incubators sometime. Office space here is 5x-10x or more what you paid.

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JT McGee May 17, 2011 at 10:18

There are several spaces selling at a premium to this one. I think its mostly because new businesses and high revenue per employee businesses are the only ones that can fit in this small of a space.

There are only two incubators near me, and none were really that exciting. One is too political (owned by the city; I don’t want to be involved in that) and the other wasn’t in a location I wanted. But they do make a good starting point for office shopping.

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Evan May 16, 2011 at 09:55

JT,

That is a fantastic move. I remember having the same feelings when I would try to study at home or at the girlfriend’s place during law school. For $131/month its worth having a barrier between work JT and Home JT

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JT McGee May 17, 2011 at 10:19

Exactly! It’s nice to have a place to call “work.” It’s weird to say, “I’m going to work” now.

I just need to squeeze $6.5/day in extra productivity out. No problem!

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Ashley @ Money Talks May 16, 2011 at 14:24

I haven’t priced office space in my area but I’m betting it’s crazy cheap. There is so much empty commercial space around me it’s crazy. They developed the corner of my street like 3 years ago into an office complex and it’s still basically empty. It’s nice too! It’s like that all over town.

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JT McGee May 17, 2011 at 10:21

Same here. We had a super big boom in commercial space, mostly because of what I attribute to what I talked about in the article about home price trends. The second people started moving to the ‘burbs in mass, the developers followed them. The problem was that they greatly overshot any reasonable estimates for growth, and now the renter is the beneficiary!

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Darwin's Money May 16, 2011 at 23:12

Wow, what a cool backstory, had no idea. Thanks for sharing. I have trouble working from home too – both blogging at night or the occasional “work from home” workday for the day job. Kids, wife, everyone thinks I’m there to play when I’m trying to get some work done. I understand why and it’s nice to be loved, but it’s very counterproductive. If I ever went full time, I’d heavily consider an office.

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JT McGee May 17, 2011 at 10:30

I’m only full-time in the sense that this is all I do other than go to school, but whether or not I continue after school is a completely different story. I’m sure if I had a lot of responsibilities, especially my own children, I’d probably learn the value of a steady paycheck. Never had I been so stressed as when I watched credit dry up for retail lenders in consumer-side finance; companies started bulking up their balance sheets by culling back their adspend. Insane, to say the least.

You said it perfectly with “Kids, wife, everyone thinks I’m there to play when I’m trying to get some work done.” You’ve got a heck of a network and business building, so full time should be just around the corner. Good luck in further developing your e-business; I’ve enjoyed reading the progress posts that you put up.

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Barb Friedberg May 17, 2011 at 17:23

Fascinating article and price! Best of luck. Keep us posted with the new office. I think it’s a great idea to help separate the “work” from “home.”

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JT McGee May 19, 2011 at 11:42

It’s been great so far. I’ll definitely have an infrequent update on it. 🙂

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Betty Kincaid May 22, 2011 at 13:30

JT,

Great insights on the state of the commercial rental market. As a commercial landlord I can verify your statement that **everything** is negotiable. Right now, the number one goal of every landlord is to get quality tenants so, taking a haircut today is worth it for a good tenant who’ll be there tomorrow.
As for excessive commercial vacancies, they have more to do with the high unemployment rate than overbuilding. As employment stabilizes, start-ups increase, small businesses begin to expand again and so on, the office market will equalize. How long that takes is directly proportional to your state and local tax and regulatory burden on the business community.

I was a little confused by your statement, made twice, that real estate brokers are “lazy” but then you go on to confess that you couldn’t have found this deal without your friend whose father is a commercial real estate broker. Real estate agents and brokers, like any other industry, are made up of people who are both diligent and not so diligent. On the average, I would say most real estate agents are more likely to follow-up on a lead since **they don’t get paid unless they put a deal together**. Having said that, if you contacted a residential agent about commercial property or even a retail leasing agent about an office property, I’m not surprised that you didn’t get a response. Unlike residential real estate, the commercial real estate market is extremely specialized and, as you found out, most markets do not have an MLS type system for commercial listings.
Good luck on the new office. I hope your post inspires others to go out and see what’s available for rent in their town.

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JT McGee May 22, 2011 at 13:59

Hmm, that could be the case too. Our problem locally is that land on the outskirts is inexpensive, yet highly desirable. A brief timeline:

15 years ago – Residential homebuilders build literal farms of homes around city limits
10 years ago – Anchor stores, especially “big box retailers” chase them to the outskirts
5 years ago – Subprime bubble brings cookie-cutter single family homes to the suburbs. People move in what could be described as an exodus.
Now – What was once a major area of commerce in my part of the city is now mostly vacant as businesses have relocated 1-2 miles east. My office is in the area that most businesses have left to chase down the explosion in the burbs.

Seeing as there is so much available land around my city, the second that prices for real estate trend higher, it becomes economically advantageous to build outside city limits. And build they do…

Prices should equalize soon. I know of quite a few startups in my small town, and I figure it will be only a matter of time before a slew of people start weighing their own business against a full time job.

I know that my statement regarding the laziness of real estate brokers and agents is based on anecdotal evidence. I tried to reach 6-8 different agents regarding different properties, and not a single one bothered to reply. It was a small sample, and maybe it would be more honest to say that the brokers I contacted didn’t reply to me. They were all commercial agents.

Thanks for your well wishes and insight on commercial real estate. I hope at least some see that office space isn’t as expensive as they thought, and that there isn’t a better time to lock in freakishly low prices for a budding business.

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Financial Success for Young Adults June 13, 2011 at 10:16

This is great information. I know I talked to you about buying a house soon, but I am seriously considering investment property instead. (I am a little ADD also 🙂 and change my mind often) That also gives you a nice way to offset your tax burden with the new expense.

If only I could find a one bedroom apartment for $131 a month…

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