Negotiate Your Lease the RIGHT WAY & Save Money

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Although owning your own studio is literally a “dream come true,” there can be times when you question what the heck you are getting yourself into… that’s okay and it’s perfectly normal. It’s a new experience you’re undertaking and with the RIGHT guidance you’ll feel confident you are putting yourself in the BEST position to succeed! Check out how I negotiate my leases:

The 1st thing you have to do is set your business up as an LLC (or other limited liability company).

The reason is you don’t want your landlord or anyone else coming after you personally if you weren’t able to pay your bills or had to close up shop (which should never happen, but you need to do it anyway). Plus, an LLC will help protect you if a client were to sue you for damages, etc.

When you set up a corporation like an LLC, you are typically shielded from having your personal assets taken to pay any outstanding debts.

The 2nd thing to do is look at multiple locations and available spaces.

You want to do this since you can then pin the landlords against each other wehn trying to negotiate a lower monthly lease term. (see my post on “merchant accounts” for more on negotiating tactics – it’s basically the same technique)

After you have the numbers from 3-5 spaces start initial negotiating with landlords.

Here’s what I did and you should try to get:

  • 3 months free rent while you build out

 

  • Tenant Improvement money (TI) – this is where a landlord pays for the build out or puts money towards the expense of you building your space. It does not include your equipment purchases.

 

  • Ramped up rent (my landlord would not budge on rent, so what I did was say that I would eventually pay what he wants in year 3, but for the 1st 2 years they would be $400 less per month (year 1) and $200 less per month (year 2) and then in year 3 he would get his full amount.

 

  • Negotiate a 3 year lease with a 5 year option (your option). This means you are locked in for 3 years – it’s good because you (and your clients) need to know where you’ll be 1 year or 2 from now. The 5 year option allows you to already have your terms laid out if you decide to renew – this is also a good thing because if you don’t have an option and your landlord sees that you’re training a lot of clients and spent a lot on the build out he’ll try to jack up your rent (not cool!). Plus, after 3 years you can always get out of it if you want a larger space or decide to move locations

 

  • Also, be sure to make everything contingent upon an inspection of the HVAC (heating/AC) equipment and the building structure. You can also negotiate that if those items break the landlord must fix them on his dime

 

I hope these tips help and they should save you some aggravation down the road if they’re done right the first time.

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  • Aric Lee

    Good Afternoon Stephen,

    I just wanted to tell you that I am completely jacked up at what you offer on your website. I am also a member of Pat Rigsby’s site, but I must say, you’re content is AMAZING. I AM going to open up a space this year. I’m currently a full time FF/Medic, but have a full client load running my own business as a private contractor of a PT studio. It’s time for me to take the % they take from me and invest it in my own space. However, I do not have my own funds at the moment. Is there any content about how best to obtain investment $, be it through the SBA, private investors, bank loans, etc? I plan to have a space of about 2-3,000 sq ft (adult gymnastics strength training center, personal training).

    Much Respect,
    Aric

    • Hi Aric,

      Thanks for the comment!

      Unfortunately I was turned down for a SBA loan when I first opened my studio… I did, however, get a loan from my bank for my 2nd location after having a proven track record.

      What I did to finance the opening of my first studio was to use 2 credit cards with 0% interest for 12 months. That allowed me a goal of making sure I paid back my loan within a year. As a back up, I did also tack out a home equity loan on my house. I don’t suggest this for everyone, but I was going all in…

      If you’re going the bank loan route, I would definitely suggest talking with a credit union or small local bank – they seem to be better at financing local businesses in the community. You could also let them know you’ll have equipment, etc. as collateral in case there was a default on the payments.

      The bottomline is that when you’re hungry to succeed you’ll find a way to make it happen!

    • Aric Lee

      Thanks Coach,

      I have decided to go the Crowdfunding/P2P route first. I am also a member of a credit union, so I will make that my second source, credit cards my third. I truly believe in what I am doing here- my vision is to create a “community” of like minded individuals dedicated to bettering themselves in all facets of their own lives. DC is stressed. I aim to help de-stress it. That is why I offer and will continue to offer free mediation sessions to the general public and lots of charity events. I firmly believe I’m on this planet to help people discover their potential, to de-clutter. This will be very apparent to the entire area once I get my own site up and running. Thanks again. I’ll write up a blog post for you about Crowdfunding after I am successful with it…

      Respect,
      Aric Lee
      http://www.evolvetofit.com

  • Robin Mungall

    Hey Steve. I’m currently sub-leasing a space in a spa (317sq ft of training space shared change rooms reception and staff room) I’m looking for a larger space 900-1200sq ft. My lease is up in August. Do you have a formula for figuring out the optimale cost per sq ft range when looking to lease… if luck is on my side buy a building?

    • Hi Robin,

      Yes, if you can buy the building it’s usually about the same in a mortgage payment as it would be for rent, and you’re paying yourself! I wish I had that opportunity, but it never presented itself…

      My private formula is about 125 sq/ft per personal trainer (1 on 1). This allows 4 CPTs in 500sq/ft, which is what I’m doing at Stephen Cabral Studio. My other space is 400 sq/ft and we can only fit 3.

      Unless you plan on doing some 20 person group classes, you shouldn’t need more than 1,000 sq/ft. We have 200 sq/ft (on top of our 500 sq/ft training floor) allocated for 2 small offices, 1 changing room, and 1 bathroom.

      Hope this helps!

  • Sidney West

    hey steve..thanks for these tips….my challenge is that i run bootcamps during the spring and summer months and would like to do it year round. the problem is that i have nothad much luck in securing a location. i do not need much space. is it best, in your opinion, to get a small place where thier is not equipment (a warehouse or something similar) or a try to rent out an existing studio and share the space? i have tried the latter with no success. any suggestions?

    • Hi Sidney,

      I always recommend getting your own place…

      I’ve had too many issues with someone else owning a space and then changing their mind a few weeks/months later about how they wanted me to use the space, etc.

      The sad thing is that once the other business that you are subletting from sees you doing a lot of business they’re going to want to increase your rent or make life more difficult for you (jealousy if a terrible thing…).

      Of course, it’s not always like this, but no matter what you do always have a lease with your terms stated in it – even if it’s only a 6 month lease.

      Hope that helps!

  • Kim Pumphrey

    Can you give me advice on which would be the best location for a studio/indoor boot camp facility I’m looking to open. The first one is 2500 sq. ft with lots of high end foot traffic to the business next door. The other is 2200 sq. ft more in an industrial business district with a Gov’t office in the same building. The front of the building is on a side street with lots of parking, The Keg is just around the corner and the back side of the building has a big sign on a very busy artery street, so the visibility is great. The second one is a few hundred dollars more expensive.

    I have the option for either one of them but am not sure which would be best for this type of business and drawing in attention. Any advice would be greatly appreciated, this is a big step for me.

    Thanks.

    • Hi Kim,

      Without actually seeing your location I always opt for the one with more foot traffic, in a residential area, and next to well to do businesses… this makes for an easier sell and greater retention rates with pre-existing customers and residents in that location.

      It’s just far easier to drive traffic (makes marketing simpler) and build a business – even if it costs a little more per month.

      Hope that helps!