Renting extra warehouse space to local small businesses?
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  1. #1
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    Default Renting extra warehouse space to local small businesses?

    Just wondering if anyone has done this or thought about it and decided against it?

    I've got about 500-1000 SF of modestly used extra space that would be nice to clean up and rent out to generate a bit more income. I'm aware there are insurance implications, liability requirements, access requirements, security requirements, etc etc to worry about. Just seems like a "waste of space" to not put it to good use.

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    Is this extra floor space in your machine shop, or walled-off space? You should be able to generate a lot more income per square foot from your operations than from rent. Also, administering a lease carries a ton of hidden costs; you might want to search old PM threads about those hassles...

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    We have done it twice.

    First time was a retired gent looking to get back into business making a product he had made years ago. He rented a table and allowed to use machinery, once in awhile if we were busy and he was slow or waiting on a machine to open, he'd jump in on our work and put time towards rent. Likewise if he needed something done that wasn't in his bag of tricks we'd lend a hand. At least that was the trial period idea.

    All in all it worked out OK, he worked 10-15 hours a week or so. We took in a few bucks that we bought the guys lunch with, stocked up on coffee, soda and the like. The rest went towards broken tools and time spent helping him with his setups and designs.

    That arrangement worked as we was a true gentlemen that did not take advantage of the situation nor did we. We really made nothing other then a friend over the year or two he stayed with us before he passed away form cancer.


    Another time we tried to bring in another business that was on a down turn. Wasn't long before we found out why they were on a down turn...more often then not nobody showed up for work and when they did it was late in, early out. Our issue was their customers coming in looking for product was a huge distraction for us...that and they had issues with ability to pay the rent, or pay for stock...then our stock started falling short for jobs.
    That situation did not work well.
    Mostly as we thought we'd iron out details as we went along...big mistake.

    That's what I got to offer...depends on who you rent it too. If you want to make money I'd suggest iron out all the details in a signed contract and make sure your insurances are in order. I'd also avoid common spaces...walls are your friend, like good fences make good neighbors.

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    That is the sweet spot for commercial rentals. They do not stay vacant long hereabouts.
    Storage is also popular. One could cage off a section and tell people it is available 9-5 or by appointment. Old neighbor used to run an old fashioned storage that way.

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    A friend on mine bought 80,000 sq ft a couple years ago and rents out app half to a another local company for warehouse and the rent covers his mortgage and then some. The part they rent is separate from his other stuff so it is easy to maintain the situation. He has been very happy with the situation so far.

    Being a landlord is great until its not, then you wish you never did it. As already said, make sure you have it all decided and ready before you rent it or it will be harder to deal with.

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    Quote Originally Posted by macgyver View Post
    Being a landlord is great until its not, then you wish you never did it.
    Commercial is a picnic compared to residential. During the Iraq thing my attorney sold all his toys and bought commercial space. I asked why ? He said "after a war they always create huge inflation because they don't want to pay the bills, so commercial rentals are a reliable way to keep up with / take advantage of inflation. And you don't have the hassles of renters' rights."

    Shitty lawyer but he knew his way around a dollar bill ...

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    Because I also invest in real estate (in addition to working a full-time job and owning another small business) I'm all for renting out the space if done correctly. As a matter of fact, when I eventually move my shop I plan on buying way more building than I need and renting/leasing out the other parts.

    That said, real estate is a business that requires some specialization and the right attitude, the same as anything else. Find somebody local to you who is a landlord and buy them lunch so you can pick their brain. Ask them who their RE attorney is and meet with them to discuss what you want. First consultation is typically free, and having a lawyer review things like this is always cheap insurance.

    Commercial and especially manufacturing space are a bit different than typical (residential or commercial residential) real estate rentals, so it pays to know what's typical for your area. There's probably a broker who can come take a look and let you know what to expect.

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    Quote Originally Posted by SeaMoss View Post
    Commercial is a picnic compared to residential. ........ so commercial rentals are a reliable way to keep up with / take advantage of inflation. And you don't have the hassles of renters' rights."
    I found the massive difference between commercial and residential.

    My neighbor rented a singlewide to a couple addicts. They made 2 payments and stopped. THey never mowed or went to the dump (no trash service). But simply threw the garbage out the door into the yard. They supported themselves by going to yard sales at the end of the day and dragging off anything unwanted and reselling it. THis junk pilled up in the trailer, yard and the 2500sq/ft building behind it.

    He went to evict them. Took 2 months for a court date. They claimed to have a rent to own agreement. So of to another court. Took 8 months. Found to have no contract. Back to first court. 3 month wait this time. Got extension. Then 90 days to get out. (all dates approx). The entire time they lived for free and ruined the place. It took a dozen roll off dumpsters to clean it up. The trailer was so bad it was torn down.

    A friend owned a building. Thrift store moved in and stopped paying. Took a couple weeks to get rid of them.

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    Thanks for the replies but I believe a few are reading into this too much. My apologies for not making it more clear up front. My intention was to set aside space, possibly walled off, for a local retailer or the like, to store extra non-perishable merchandise. Charge a volume (LWH) fee, similar to Amazon, and allow access M-F 9-5. This wouldn't be a tenant/landlord situation since the outside businesses wouldn't be working or doing anything else in the space beyond box storage.

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    first, write the rental agreement/ contract, totally in your favor, nobody reads these things so they will sign it. consider what happens when they don't pay and leave a bunch of stuff behind. if it has any value and it is not your property what do you do with it? or if is is trash, then it costs to remove it. you can put in the agreement that the deposit becomes yours after 15 days of non-payment and the contents becomes yours after 30 days. [for instance] check with an attorney, but pretty much if the other party signs off on it and your not doing anything illegal, then you should be good,
    When I had a warehouse for my own stuff I would get customers and who ever wanting to store something, or to place something on consignment, [then change there mind and not want to sell it.] before I knew it I was stuck with it and now what? throw it out? sell it? legally it wasn't mine to sell, so I learned that I had to do the above or I would be stuck with the thing forever. I also found that big companies put stuff in storage to hide them and can be happy if they disappear. a local big corp apparently accidentally ordered two very expensive machines and then put the extra one in off site storage to hide it, that eventually got shipped to a foreign plant, I gathered that I could of hauled it away for scrap and they would of been just as happy.

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    Quote Originally Posted by Jay Fleming View Post
    Thanks for the replies but I believe a few are reading into this too much. My apologies for not making it more clear up front. My intention was to set aside space, possibly walled off, for a local retailer or the like, to store extra non-perishable merchandise. Charge a volume (LWH) fee, similar to Amazon, and allow access M-F 9-5. This wouldn't be a tenant/landlord situation since the outside businesses wouldn't be working or doing anything else in the space beyond box storage.
    If you want to go that route, make it a "secure, climate controlled storage facility" - around here (Western New York) you'll get a 5'x7' unit for around $65/month. 10'x7' go for around $100/month.

    Issue keys and padlocks, and put up a motion activated camera and lights. Self-storage has a wider audience and requires a lot less input or effort on your part, and has quite a bit less liability than what I think you're proposing.

    Since you're already at your building during the day, it'll be easy to meet your new renters, etc. (one of the biggest hassles of an off-site storage facility) and the majority of the time all you'll have to do is make sure everyone is paying every month (Cozy is a free website for collecting rent online, and has a lot of automated systems so it's all hands-off for you.)

    That's just my two cents.

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    An acquaintance is opening a shop, and looking to monetize square footage he won't be using right away. (Includes some shop access, so not the OP's exact situation.) His legal advisor recommended making the extra space a benefit of club membership, rather than tenant relationship. That way, control of access, conduct, and termination is based on club rules, not real estate laws and courts. Not a lawyer, so don't know if it's a pipe dream or not. But evictions (especially residential) are slow, slow, slow, and the deck is stacked against the landlord.

    Chip

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    I am leasing two units in the unused half of my building. Easiest $1400 per month I've ever made. It's working out famously so far, but I was super picky about the renters and if either don't workout, I've got a waiting list about 8 deep.

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    Quote Originally Posted by Chip Chester View Post
    Not a lawyer, so don't know if it's a pipe dream or not.
    Look up "bailment". There definitely are rules about your responsibilities and you might be surprised what they are. They also date back hundreds of years so it shouldn't be a shock to people ...

    However, they are a lot less onerous than the rules covering residential properties.

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    Just be certian that the area is properly "isolated" from your buisiness.

    Both legally any physically so lost items cannot be blamed on you or someone falling in the space does not impact you.

    Contact your insurance agent as this should be a standard thing for them and they may have a standard policy paperwork that will allow you to seperate that part and have a sub renter pay for coverage there.

    Anyone "operating" under your roof can drag you down a deep hole so you will need to be certian that there is proper insurance in place and cost is specific to that space so the Tennant pays for it as a line item on their bill.

    They pay you and you pay insurance so you are fully in the loop and all paid in advance with lock out day of end of paid days meaning if they are paying by month in advance due on on first day good until last day and payment not received lock goes on fist day and zero access even with escort until paid.

    Make this clear in contract and as already covered include abandonment instructions for how to handle items in storage after no payment for X days.

    Consider adding a small amount per month to build a pool of funding for removing or cleanup.

    Sent from my SAMSUNG-SGH-I337Z using Tapatalk

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    Around here you can rent a 10x30 storage unit for a little over $100. If that is all you can get it wouldn't be worth the aggravation.

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    Quote Originally Posted by [email protected] View Post

    ...I was super picky about the renters...
    And there, in less than one sentence, is the secret sauce of owning rental properties successfully.

    Background check, credit check, current paystub, and reference from current landlord, or I won't even show a unit.

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    Quote Originally Posted by converterking View Post
    Around here you can rent a 10x30 storage unit for a little over $100. If that is all you can get it wouldn't be worth the aggravation.
    Very good point. I can't let loose of 300 SF for $100/mo. Not worth the hassle.

    Thanks for all the other replies but I think at this point, the issue is dead.


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