Forums: Discussions for entrepreneurs and small business.

Currently I run my business out of my home, a lovely but small 1-bedroom apartment in a converted historic mansion. I am about 6 blocks from the center of downtown in a small tourist town.

Down the street from me is a HUGE Victorian house for rent that I`ve been eyeballing very hard. It`s on the national historic register and was a bed and breakfast until about a year ago.

The rent is about 3x more than I`m paying now, and I absolutely cannot afford to pay that yet, but get this -- it has EIGHT bedrooms, FOUR full bathrooms, and is zoned business/commercial. It`s right downtown and is less than a block from the library, the post office, the farmers market, my bank, and all kinds of restaurants and shops. Because it`s zoned commercial, I would be able to get a real sign to hang out front, and accept walk-in clients, which I can`t do now. I would also have room to expand my business into other things beyond graphic design which I`ve been putting off for lack of space.

Here`s what I`m thinking.... because it`s zoned commercial and is so close to everything, I think I might have a good chance at renting the upstairs bedrooms as offices and cover the full rent, essentially reducing my own rent to zero or even making some money on it. I can set up my own living space and office on the main floor, which would completely rock because my office would have a real fireplace.

The risk is that if I can`t sublease at least a couple of the rooms, I`m totally screwed.

What do you think? Are the potential benefits worth the risk?

You can see a picture of the house here: http://www.bellefontearts.org/Virtual_walk/Hamilton.htm

(you can`t tell from the picture, but that front porch is big enough to put a nice big table and have meetings with my clients outside. How sweet is that! There`s also a servants` quarters in the back that comes with it, currently used for storage, which I could probably also use for business purposes somehow.)

thanks all,
—paula

I`m 90% certain signage won`t be a problem, although I`m sure there are strict requirements for size, colors, etc., as well as a hefty permit fee. There are other houses all around it that have signs for things like doctors offices, dentist offices and the previous B&B had a sign there.

I can probably swing the up-front costs to move in depending what all deposits and such they want, but once the first month`s rent comes due I`ll need at least a couple renters. That`s why it`s so risky.... I operate with no credit at all, not even a credit card. Everything is cash flow.

Ah, time for Donny Deutsch! Maybe I can actually catch Rich this time... it`s a kick to see internet acquaintances on video moving around and talking! Heh :D

—paula

Kathy and I have been discussing risk, even putting up a topic on when to take a financial step. Out of that, I`m starting to see two fundamental concepts that apply to risk assessment.

The one is the definition of affordability. What does it mean, "to afford" something? It`s one of those concepts that seem to be easy to grasp, but what`s the definition? The dictionary begs the question, saying that meeting an obligation without serious consequence is the essence. But that doesn`t really define the term, in my opinion.

The other concept is each person`s basic philosophy of debt financing (credit, loans, etc.). The two concepts go hand in hand. If you have no problems with debt financing, then something is affordable if you have room on a credit card. If you don`t subscribe to debt financing, then unless you can pay cash, it isn`t affordable.

What concerns me in your above scenario is that at the moment you`re almost entirely independent. As much as possible, you control your own destiny pretty much entirely. If you were to enter into this situation, you would immediately become a dependent, worrying constantly about the sustainability of your renters.

That is so true Craig!  I guess I just saw it as, what Paula was describing..... a way to grow, and change some things, but definitely with some risks, and decisions to be made.. 

Y`know, still thinking about "affordability," I`m returning repeatedly to a time in my life when I was in deep doo-doo, financially speaking. At that time, I ran across two basic rules, which I put into place and that got me on the road out of trouble.

1. There`s no such thing as a once-in-a-lifetime deal!
2. If you have to ask the price, you can`t afford it.

I`m pretty much in agreement that the verb, "to afford," means being able to bear the cost of something without experiencing unpleasant financial consequences. I wish it were a more elegant definition, but that pretty much says it all.

Staying with the second rule above, I`d say that if you`re worrying even before you move into the place, then you`re "asking the price" over and over again. To that end, it`s not affordable. Especially when taking into account today`s overall economic situation for so many people, what happens when a renter loses their job....gets outsourced...or just walks away?

Something to consider there involves the current rental laws. Around here, you can`t simply evict someone anymore. There`s a whole, lonnnnng process the landlord must go through before eviction. Then there are other legal obligations the landlord is accountable for. Lots of people on financial talk shows discuss the fact that had they known what it would entail to be a landlord, they would have thought long and hard about getting into it at all.

I just got back from touring the place and holy crikey, it is huge!!

I asked the property manager lady if the landlord would move on the rent price at all, and she basically said "make me an offer." She`s having trouble renting it and I can see why... the ceilings are 14` high with no ceiling fans, which means keeping the place warm in winter is going to be a major investment. It also needs some repairs, some fairly serious, which aren`t going to get done because the owner wants to be there to coordinate everything, but she lives in California and isn`t coming back anytime soon.

With Craig`s words of wisdom and what I`ve seen in there today I am leaning against taking it. Even if the rent were zero, heating the upstairs for subrenters might be enough to put me in the poorhouse. What I might do is see if she would be willing to rent me just the main floor, and include heat in the rent, and leave it up to her to be responsible for renting the upstairs rooms.

So, the saga continues.... Craig, thanks for your input, your thoughts are definitely worth considering in all of this.

—p

-------------------------

If you want something you have to MAKE IT HAPPEN. No excuses. Take responsibility for your life. You have to push, push, push, and NEVER quit.

If you`re going to play the game, you have to know the rules.