Negotiating Business Deals/Question for Jacob

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Dear expert

A friend that I knew for the past ten years is a family doctor. He got his own office clinic that he use to meet patients and to teach medical students, who get their internship training in his clinic to become physicians.

My friend sends his medical students to stay in a rented house to sleep few miles from his office and they pay rent while they are attending their training. That house is owned by strangers that we donít know.

I am thinking about buying my own home, and I want to have some roommates in order to make the house a rental property while I live in the same house to manage it myself. I told the doctor when my house is ready, he can start sending his students to me instead of sending them to the stranger. The doctor liked the idea and he said that he can post an ad for me in his web site free of charge, and he told me that I can expect about three to five people per year to come to my house to sleep and pay rent. He wants my rooms to be furnished with king or queen beds, he want his students to have access to kitchen and shower with towels, he wants to determine the amount of rent I should ask for, and he also want me to buy home insurance, but I think that insurance for the house is not necessary and is a waste of money. Insurance is not required for me because I am not going to use mortgage or loans and I will buy the house in a safe area.

I never owned a house before and I donít know the pros and cons about rental properties. I am just going to have about three rooms including basement. I did not buy the house yet but I donít think the house will have enough space for 4 to 5 people per year because I will be living in the house myself in addition to the other renters. Any ideas or suggestions that you have about this topic are appreciated.

Thank you

Answer
Dear Karem,

I understand your situation. On one hand, you'd like to have a cozy little house (3 rooms), on the other hand, you want it to support 4-5 renters that each needs a separate room. Can you see a contradiction here?

Your friend doctor is sending his students to a stranger because they can accommodate so many people. It's not just a number of rooms. You should also have at least 2-3 bathrooms, larger kitchen with large refrigerator, or mini fridges in every bedroom. If your house can't provide such amenities your friend doctor won't be able to use your services. He wants his students to be accommodated well; it's his business and he won't jeopardize the business.

You were told correctly about insurance. You would definitely need liability insurance in case one of your tenants falls down the stairs and breaks legs. Otherwise, you'd have to pay for the treatment out of you pocket and, as you know, it can be very expensive.

Bottom line, you can't have both, a little cozy house to yourself and large boarding house. You have to make a choice. I hope I was able to help.

Negotiating Business Deals

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Jacob Berenfeld

Expertise

Selling a small business, buying a small business, preparing business for sale, small business appraisal (valuation), exit strategy planning, business coaching.

Experience

I am a business broker with over ten years of experience helping small business owners to sell their businesses. I am a small business owner myself, managing partner with Global Business Group - California business brokerage firm.

Organizations
BIR Business Brokers Network

Publications
You can see my articles at Small Business Blog, http://www.gbgusa.com/small-business-blog.html. You can also read my discussions and answers on www.linkedin.com.

Education/Credentials
MS in Electronics, licensed California business broker.

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