Question Rent as a percentage of sales?

[John Ranes II CPF GCF]

I'm curious as to what the average (Grumble) frame shop pays in rent each year as a percentage of their gross sales.

Obviously this is highly dependent upon geography and I'd like to exclude home based businesses for this particular poll if you don't mind. One concern over the past decade was that the high cost of real estate might be a contributing factor in driving away smaller independent businesses (not just custom framers). For the sake of this poll, I'd really like to compare the cost of commercial property.

If you own your building...we can create another poll later. I do have a category here for Home Based and Building Owned responses.

Kindly calculate your rent minus heat/electric or subtract any triple net (common area expenses): Total Annual Rent / Total Annual Gross Sales

Thanks for adding to the data and sharing...

Regards,

John

 

[Jay H]

Everything is included into my rent and I can't remove them because they aren't itemized. With everything I come in at 8-10%.

 

[John Ranes II CPF GCF]

It does get complicated...

Hi Jay,

I guess I figured that most folks in strip or mall centers would be quoted their rent +triple net expenses +heat and electric. I forgot that there indeed are all sorts of ways to calculate rent.

Some landlords share an expense sheet with their tennants showing the actual heat/electric being added to the base rent.

In what category would you place yourself with a best guess estimate subtracting the additional costs to determine the net rent?

Thanks for contributing btw!

John

 

[Jay H]

Yea at my first location and at the mall, it was all prorated and rent would have still probably been 10% - %12. That's just a guess though.

If I had the ability to subtract out all cam, taxes, insurance, and utilities then I'd be well south of 4%. My disclaimer though would be that I do not think that is typical or would be a reasonable goal for others to reach.

I somewhat understand subtracting out utilities but why cams and tripple net stuff? Is there a specific reason for not taking that into account? My first landlord was a common crook. He would jack the cams up every quarter and refused to budget for the year. CAMS alone was a motivator for me to move even though the actual rent wasn't out of line. Also the landlord can't do anything about the taxes but do they have to carry the best insurance in the world on their junky old buildings?

When figuring the value of a location I'd think those things would matter unless you had a specific reason for removing them.

 

[John Ranes II CPF GCF]

...I somewhat understand subtracting out utilities but why cams and tripple net stuff? Is there a specific reason for not taking that into account?

When figuring the value of a location I'd think those things would matter unless you had a specific reason for removing them.

Base rent is typically easier to compare, as many folks (ourselves included) do not pay the landlord triple net or cam fees - it is included in the base rent already. Most investment properties will quote prospective tenannts a base rent plus $2-5/sq ft for triple net expenses... taxes in the midwest have actually been pretty stable for about the past 10 years.

John

 

[Jay H]

I wanted to get away from triple net. But if you have to pay it, I much prefer the way mall did it which was to budget for the year and divide all that stuff by 12.

It's very risky renting from a landlord that won't budget these items. If they woke up on monday and wanted to gold plate the parking lot, they can and have no reason not to....they aren't paying the bill. I'll probably not get into that situation again.

 

[Richard Darling]

The economic downturn makes it a little difficult to establish a baseline for annual sales in my 2nd location purchased last summer. Based on sales/rent right now, I'm coming up with about 14%, which I think is higher than I want to be longterm.

 

[Bob Carter]

Hi John

If I may

If you establish an occupancy charge, a rate that it costs you each and every month to open the doors, that may be a more viable number. Included may be all utilities except phone and internet, all insurance, all maintenance, all taxes etc

Unfortunately, these numbers are a lot like credit card fees-there are so many variables and fees, the only meaningful method might be to add all fees and rates (for credit cards and rental expense) and divide into sales

Just like we always see someone that has a 1.475 % credit card fee, it really is pretty meaningless

Assuming an average volume of $20K/mon at under 12% that reflects less than $2400/mon to open the doors every month. That's a pretty sweet operation

For what it's worth

Otherwise, use just flat base sq

Years back Jay Goltz attempted with FramerSelect to develop a matrix and just could not develop consensus and the info was pretty useless.

 

[Kirstie]

Roughly 6-8% depending upon the sales year. On the higher end since last September. This does not include yearly property tax, monthly garbage, license, taxes, and electric. We have rented at the same location for 32 years. We are two blocks from The University of California and we are underneath a 7 story parking garage. We are one door away from the corner of a very busy and more high rent street, but that street has vacancies and is not considered desirable by many businesses. Our immediate neighborhood is not considered upscale and does not draw in casual shoppers from wealthy areas. We are destiantion framers. People drive in, park upstairs, get their framing done, and usually leave the area. University personnel walk to us for departmental work.

 

[etlock]

John,
I for one like the simplicity of the question RENT as a percentage of sales. RENT is what I pay the Landlord, SALES is what I used to have. 2007percentage was 8.7%. 2009 percentage is 12.2 %. There has been no rent increase over the last three years. We need a finger in the dyke, quick !

Tom Pavlock

 

[Couture's Gallery]

As one of those who owns his own building ( and it is paid for ) we still have to consider cost of taxes, insurance and maintenence...Taxes run us about 6k, insurance another 6k( yes, Florida is HIGH on insurance if you can even get it), and routine maint is about 1k per year....plus **** happens like I just spent 5k on a new airconditioner for the 2nd floor, and we need to set aside $ for these type emergencies...so we figure about $1500 a mo. for our fixed cost on the facility...that's for over 6k sq ft, so not bad..and i have huge equity when it comes time to bail out and retire...Bldg is currently appraised at $850,000..down about $200,000 from 2 years ago ( the economy), but overall still think owning your bldg is the way to go....my 2 cents worth.

 

[maryframer]

I voted over 12%

I hope that will go down (it better) in the next year as biz grows. We will be in year 2 after October.

 

[John Ranes II CPF GCF]

Over 12%...

I voted over 12% -- I hope that will go down (it better) in the next year as biz grows. We will be in year 2 after October.

Mary,

Kirstie mentioned that even for her 30+ year established business, her cost/sq/ft/retail sales had actually drifted upwards in this past 9 months of economic decline.

One reason I decided to create this survey was my own personal interest of comparison, but in a bigger sence I was concerned that the cost of real estate was a contributing factor in the decline of local independent business. Not just picture framers, but galleries, gift shops, etc.

Thanks for sharing.

John

 

[John Ranes II CPF GCF]

Interesting...

OK...let's see if I've got this right. As of this Holiday weekend, 177 framers knew exactly what percentage of UV glass they used in their framing jobs, but only 83, ess than half, knew what their rent is as a percentage of sales.

This is a business question and both questions are important to understand if you want to control the direction you are headed.


John

 

[Sherry Lee]

I wonder why there is a seperate section for "Home Based"? "Home Basers" still pay rent or mortgage...or if their home is paid for, the company should be paying rent into the owners pocket. It seems to me that is just Business Finance 101. If that is not being done then the company's finance records are askew.

Given that, I don't understand the need to differentiate a store front business from home based. They are ALL retailers.

Now, if you would want to change it to read "hobbyist", I'd understand. But then one person's definition of a "hobbyist" could be different from another, for sure. Mine would be, someone who "tinkers" with framing but does not hold a business license and does not uphold such things as tax laws.

 

[John Ranes II CPF GCF]

Commercial Rent

I wonder why there is a seperate section for "Home Based"? "Home Basers" still pay rent or mortgage...

Sherry,

Some do and some don't. Typically the "rent" paid in these home based scenerios would be far different from traditional commercial property, hence it would skew the data in this survey.

No slam on home based framers was meant, I was just really attempting to determine what STORE FRONT framers were paying in rent/sales.

Given that, I don't understand the need to differentiate a store front business from home based. They are ALL retailers...

True...in most every other application, I agree. Home based framers can be just as professional in every way.

John

 

[Dave]

Quote:
Given that, I don't understand the need to differentiate a store front business from home based. They are ALL retailers...

...or manufacturers

... or prototypers...

Depends how you look at it.

:kaffeetrinker_2:

 

[DTWDSM]

wondering...to those who own their own building, do you have it set up so that a separate company owns the building and the frame shop pays rent to that company? Seems like that possibly could be another way to get more money for yourself out of the business

 

[Dave]

Tim ...gets a little more complicated and also depends on your form of business and what state you live in or incorporate in.

One good way to consider is to put a building in a trust.

Consult a CPA or tax attorney for best advise on this one.

 

[DTWDSM]

I understand, I also have no intentions of buying my building, I am in a mall. I was just curiousas to what people do.

 

[HB]

wondering...to those who own their own building, do you have it set up so that a separate company owns the building and the frame shop pays rent to that company? Seems like that possibly could be another way to get more money for yourself out of the business

I own both