July 2007: Straight Answers to Tough Questions

Q:
One of my goals was to own my warehouse/office space. I’ve talkd to may real estate agents (even the ones that have something to sell), and for the most part, they suggest renting. The agents say unless I need at least 8,000 square feet, I’m better off financially to rent—I only need 3,000 square feet. I know you don’t the Minneapolis market, but do you have any thoughts? I kow a lot of small contractors who need space, but it’s either too large or outrageously priced. In your experience, is it profitable enough to build smaller spaces for selling?
Richard Williams
Willcon Plumbing

A:
If you can afford the down payment and qualify for the loan, buy a “divisible” 8,000 to 10,000 square foot building, and rent out the other half to other tenants, contractors and friends. By doing this, you will double your real estate appreciation. Have your company occupy the back of the building so your other tenant will get the best space, and you can charge them more rent. Look for an older building that can be fixed up, divided and is located in a good area. Brokers usually look for a quick commission and an easy way to do business. Don’t give up. The right divisible building might take a few months to find. This decision will be very profitable in the long run for you.  
 
 
Q:
I own a custom tile company. We have been in tiling for several years and have done subcontracting for several area contractors, doing projects such as banks, churches and private residences, which we usually bid direct. We are located in a very rural area of North Dakota, fifty miles to the nearest sizeable town. This makes it difficult to access big jobs—the direction we would like to go with our business. We are true craftsmen, but our talents are not being utilized as much as they should since do a lot of small jobs. We are aware that most contractors have their own tile setters, but some don’t. We want to let those contractors know about our availability for large commercial projects. Any suggestions would be very much appreciated!  
Jackson Millford
Craftsman Tile Installers

A:

The only way to make a profit is to have enough work available to build a profitable business. Due to your location, it sounds like you may be approaching a dead-end street. Unless you are willing to relocate to a growing community, you’ll not be able to build your business or make lots of money. That is your lifestyle choice. I am building four projects in Las Vegas, NV, and they are begging for great tile contractors there. Check it out if you really want to go big. Large commercial jobs are usually performed by full service tile contractors with their own crews. Have you contacted every retail flooring store in your state? They generally don’t provide labor and subcontract their work. By only offering labor for tile work, you limit your bottom-line potential as well. Why not become a full service tile contractor offering design, labor and material? This way you’ll also get a markup on material. When you only provide labor, you don’t control your future, and customers decide when they need you and what they can pay—not a good way to make your business work. It sounds like you’re happy being a starving artist who loves to golf! Not a bad way to go!

Construction Business Owner, July 2007