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Yay, choices!

We've been open for nearly nine months as I write this. We have a routine, we have regulars (thank you!), and we have options on how to grow from here. In short, we have some room available to add other services or professionals and I've been comparing some options.

Best use of space

Our top priority is adding congruous services that fit well with the ones we already offer. Why? People recognize most easily what they expect to see. It's why we've had so many walk-in clients looking for a massage. Because Spa and massage are--to many--tightly associated. So far nobody has called asking if we sell fish bait or do kidney dialysis, though I suppose either would work in that room...hmmm.

A Look at Revenue Options

Offices like ours go for around $25 a square foot per year in the commercial medical office rental market. Since that number jumps around significantly depending on what's available today, a fresh sounding is always necessary. Things quickly get complicated from here because different business models: lease, sublease, employ, use different units. I like my figures stated as Revenue per Hour because employees accept an hourly rate and so do business owners, they just often don't know their rate.

Often a thing is more valuable as the sum of its parts, offices like ours lease rooms for well over $25 a square foot per year, this is one reason why Room Rental or Booth Rental is a popular model. Many full building leases allow the tenant 24 hour access to their rental. While many Room Rentals are only available to the tenant during regular business hours. In practice this is usually a non-issue as both lessor and room-lessor are going to do business during normal business hours, meaning their tenancy impacts the space in similar ways.

Return is ever balanced with risk. A five year lease is not uncommon with commercial real estate. Yet Room Rental leases are most frequently either: month to month, six month, or one year. Tenants seldom transition seamlessly, meaning that though a Room Renter may pay more, the space may go unrented more often, and you must account for the extra time and trouble spent handling many leases.

Comparing Revenue per Hour per square foot

Lease the whole shop at $25 a square foot per year, Revenue per square foot per Hour: (25 / (365 * 8)) = .008 simoleons an hour.

Lease a 150 square foot room for $600 a month, that's $48 a square foot per year IF there are no gaps in tenancy. Revenue per square foot per Hour: (((600*12)/150) / (365 * 8)) = .016 greenbacks an hour. Building common areas, like the restroom, kitchen, or reception area, aren't directly billable and this will have to be worked into the bigger picture.

Rent earns pennies per hour?

For a typical eight hour day, per square foot, yeah. The more access a tenant gets the lower the revenue per hour. Though its true that landlords get paid even when the business isn't doing business, in practice, working it out to a wage allows for fun comparisons. Washington Minimum Wage today is $9.32 an hour. Meaning the lowest wage in Washington commands as much as 582 square feet of office space an hour. It seems to me that cubicles should be larger!

Can you base rent on commissions?

That would not be typical, which means that if there's trouble, you may find the courts deciding you've created an employee out of your tenant, and then things get very interesting.

It is possible though, if a tenant explicitly and contractually agrees to pay commissions as rent, a court might still see them as a tenant. But it's kind of a moot point because competition for tenants encourages a norm and commission based rent is not normal.

How can I make my tiny building a good earner?

In a word, employ! People add value when they're the right people for the right spaces. Consider that while you could rent that 150 square foot room and earn $2.50 an hour, you might also fill it with a professional employee and earn a percentage of their services. Suddenly that room can earn $10-20 an hour or even more after expenses and paperwork. Of course the same rules apply, risk and reward, the caveats for landlords are different than those for employers but both have caveats and require a goodly amount of vetting, structure, and planning to do properly.

Absentee landlord vs. absentee employer

Employing people is the obvious choice if you're going to be on the premises all day anyway. Supervising and management is, in this case, already a part of your day. If you have a building you don't monitor however, I would carefully consider the risks. In general, lazy landlords often escape unscathed or lightly scathed, whereas lazy employers are likely to take a drubbing from all sides. Be honest with yourself about these commitments because profit can easily become loss if you're slow to the helm in any situation, but especially as risk increases.

What about?

Oh yes, the devil is most certainly in the details. This isn't meant to be a deep-dive on any of these options, only to say that there is a clear trend, more time invested equates with higher potential rewards and also a greater risk of both time wasted and of situational comedy (fate) laying you low.

Keeping Control

I've said before we're control freaks, definitely detail-oriented folk. As a landlord you must relinquish some control. Get a security deposit because there may be holes in walls, gouges in floors, and your tenants (and their clients) may bring associations, reputations, and reviews, that aren't what you hope.

You cannot tell a tenant how to perform their profession, you can set some building standards, but you give up a good deal of your meddling ability. Why does this matter so much? It matters to me because I cannot as easily enforce a standard of excellence.

As an employer, I can be explicit about my hopes and work with someone to reach a level-of-care for clients. As a landlord, they aren't my clients anymore, if the tenants are good, I may still run a 5 star Day Spa but if they aren't, my only real tool for changing that is the lease. The wrong tenant, like the wrong employee, can do damage to reputation and person that frankly, scares me. But with the tenant, I may have to wait months or even years before I can remedy this.

Where's the Awesome Sauce?

You can make a win out of anything with the right attitude and shouldn't be afraid to try different avenues--if you plan carefully. However, employing people to help other people directly, has a lot of conceptual wins. We hope to find talented and motivated professionals so that we can add more care options while maintaining a reliable quality of care. Bon chance to us and you too!

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