Chapter Two: Cost of Space
- Preparing Your Budget
- Space Expenses
- Moving Costs
- Additional Costs
- Final Considerations
- Leasing Information
- Purchasing Space
- Leasing vs. Buying
Now that you have started thinking about the type of space you want and need, contemplate your funding options. With any lease or purchase, you must answer these two questions:
- How much you can afford to pay?
- What are the actual costs associated with operating the space?
This chapter helps you to examine your finances and expenses and to better understand the costs associated with operating a space. The three distinct sets of worksheets for you to complete in this chapter
Preparing Your Budget:
Understanding how you spend money is critical in determining your budget. Know your annual net income (i.e., how much you earn after taxes) and total
expenses: The difference is called your disposable or residual income.
Although you still might not know what type of space you want, remember that many options are available to you. As an individual artist you can choose to:
- Combine living and working in a single residential space.
- Combine living and working in a single commercial or industrial space.
- Keep your living and working spaces separate.
For arts organizations and groups you may want to consider your performance and administrative needs. As an arts organization you can choose to:
- Combine rehearsal, performance and administrative space
- Keep performance and administrative/rehearsal space separate
- Any combination of the three
In addition as an individual artist or arts organization you should consider the advantages and disadvantages of:
- Leasing space
- Purchasing space
- Combination of the two
You should visit the Department of Planning and Development (DPD) early in your preparations. Discuss your plans with a DPD land use planner and a permit specialist in the Applicant Services Center (ASC) before you lease or buy new space. The land use planner will review the allowed use for the facility and the permit specialist will discuss what improvements are needed for an occupancy permit. Who contracts for and funds the improvements needs to be negotiated with the landlord or seller as does the schedule for completing the improvements. (The ASC is located in the Seattle Municipal Tower on 700 Fifth Avenue, Suite 2000.)
As you look for space, you can either:
- Remain within your current budget -- the amount you presently spend on space (i.e. apartment, loft, studio space, theater, or office space etc.)
- Increase your budget.
If you increase your spending on space, then your residual income typically represents your available amount of funds. For example, if your current
apartment is $600 per month, and your studio, $150 per month -- and you end up with $150 in residual income after paying your other expenses -- you can
raise your space budget to $900, which represents the cost of your apartment and studio combined with your residual income ($600 + $150 +$150).
Keep in mind, however, that a larger space typically comes with higher utility bills, insurance premiums, property taxes (if applicable), etc.
To help calculate these expenses, individual artists should fill out the Calculation of Annual Expenses for Individuals. Small businesses and nonprofits should use the Calculation of Annual Expenses for Businesses and Organizations (link to worksheet above).
- Worksheet Considerations for Individuals : List all your annual costs (no matter how minor), including art supplies, food, professional fees, child support payments, clothing, entertainment, insurance, transportation costs, cigarettes, etc. Also include the cost of your current living and working spaces, if applicable. If you now rent workspace, note your total rent for that space (including all taxes, utilities, etc.) at the very bottom of the worksheet as indicated. Calculate your workspace costs and household rental costs separately. If your live and work spaces are combined, then calculate everything together. Fill in the form as best as you can, ignoring those categories that do not pertain to you and adding those that are not listed.
- Worksheet Considerations for Businesses and Not-for-Profits : If your business or nonprofit wants to relocate, filling out these worksheets is a little more straightforward. Much of the information concerning your annual expenses is readily available in your annual financial reports.
If you need help with calculating your expenses, speak to an accountant. See the resources in Chapter 4: Professional Services for information on locating accounting services.
Rent and mortgage payments are just two types of expenses associated with occupying a space. You must also consider the cost of insurance, property taxes, moving expenses, utilities, etc.
Your real estate agent or the current property owner should provide you with accurate dollar figures for most of these costs. Be sure that any bills or
statements shown to you are recent (especially the property tax bill, if applicable). Also, Chapters 16-21 provide resources and advice on how to
locate information on property taxes, utility charges and insurance for your space, property and art work.
Keep in mind that a residential lease will typically only include the cost of your rent, utilities, insurance and personal living expenses, which will drastically reduce your expenses. If you have a commercial or industrial lease, your expenses might be as much as they would be if you had purchased the property, especially if you have a net lease.
The remaining worksheets in this chapter will help you to calculate the full cost of your proposed space. Worksheets are divided into two sections - Leasing Information and Buying Information found in appendix E. As you complete the worksheet, consider:
- Your annual totals for bills. Many bills, including property taxes and utilities, are levied over different periods of time. Some might cover a two-month period, while others are monthly or yearly. Heating bills fluctuate on a seasonal basis. To estimate the cost of your monthly bills, add an entire year's worth of bills together, and then divide by 12. The remaining figure represents an average cost of the bill over the year. Factor in increases in utility charges and property taxes over the next five years. To get a better idea of both your leasing and buying options, complete both sets of worksheets.
Before completing the worksheets, also consider the cost of moving. See the next section, Moving Costs for additional information on this subject.
Moving costs can run high due to the many associated costs: packing supplies, rental trucks, hired hands, gas, insurance, etc. There are two primary ways to accomplish the task:
- Do it yourself
- Hire someone else
The most costly aspect of moving yourself is the truck rental. Shop around for price breaks -- often given to those who rent trucks at certain times of the day or week -- and rental packages.
Pay special attention to any penalties associated with dropping the truck off late, accident liability, etc, and how you will be charged for mileage. Some companies' fees run as high as $0.45 per mile!
Key things to consider when moving yourself:
- Does your personal property insurance cover items broken during the move?
- Do you need to take out additional vehicle insurance, or does your personal insurance policy (vehicle, property, etc.) cover you for the truck rental?
- If you are an artist working with heavy or bulky equipment, can your assistants handle the load?
If you use a credit card to rent the truck, does the card provide insurance coverage for the truck rental?
Some common truck rental companies include:
Hiring a Mover
You can hire a company to move you -- across town, across the country, or even overseas. Movers will pack and move all of your belongings, or just
handle one part of the process. Some companies allow you to pack the truck before they drive your items to your destination (these services are usually
used when moving cross-country).
When you speak to a moving company, ask about the range of services offered; nail down a final price, than comparison-shop. Many moving companies provide free estimates; keep in mind that the actual move might cost more or less. After hiring the company, give them a contract that specifically spells out your hourly fee and covered services.
Include the name of your mover's company in the contract; some companies outsource jobs to other firms. It is also important that your contract details charges associated with traffic delays, late arrivals, broken items, etc.
Before you hire a moving company, ask these questions:
- Who will move your belongings?
- Are the movers insured, and, if so, what are the maximums and minimums? Will they cover boxes you've packed?
- How will the company determine your fee?
- Are there hidden charges -- for example, if the movers must climb flights of steps, or if more than one person must move an object?
- Do you need a mover that specializes in offices, art, etc.?
Write out all agreements and conditions in the contract before you sign.
In addition to the actual cost of moving your belongings, you must consider indirect costs such as renovations and potential productivity losses. Renovations constitute a type of moving cost in that you will incur them simply to adapt your new space to suit your needs. For example, if you relocate to a warehouse and convert it to a live/work space, you might have to erect walls, upgrade kitchen and bath facilities, and replace flooring -- or even install a specialized ventilation system. Seriously consider the long-term benefits of renovating a leased space before signing any contracts.
If changing the space is necessary, allot sufficient funds to cover these expenses -- especially if you have some form of net lease or are in a
commercial or industrial space. Chapter 7: Commercial and Industrial Leases discusses how to factor renovation costs into your lease agreement.
It can be difficult to gauge how much your move will negatively affect your productivity. Measure lost creative or productive time by counting how many hours you have spent searching for space and packing, moving and resettling in the new environment.
As you prepare to move, transfer your utility services, change your address, enroll your children in different schools (if applicable), and switch your commuting schedule. These activities often come with a price tag: Not changing your mailing address, for example, might end up costing you late fees in bills because documents did not arrive at your new location in time. And transferring existing utility services to a new location will include connection fees and/or security deposits
Moving requires planning. Start preparing at least three months before moving day by nailing down the logistics of packing, rerouting mail, looking at
schools, and finding insurance. Give yourself at least six
months or more to actually find a space.
The following Websites provide information on movers (some move art), truck rentals, and resources for relocating to new cities and neighborhoods. Some of these websites also provide free quotes from moving companies.
- Monster Moving : Information on art movers and shippers
- Cost of Moving
- 50 States : Comprehensive listing of U.S. newspapers in all 50 states
- Sterling Best Places : Provides neighborhood profiles and other information about relocation
- Find Your Spot : Tailored reports that compare your interests and needs to the best places for you to live
- Salary.com : Provides comparison information on cost of living
Now that you are thinking about moving expenses, review the next two sections, Leasing Information and Buying Information, and complete the worksheets.
If you plan to lease, then complete the Leasing Costs worksheet found in appendix F. Remember that when you rent a work-only or live/work space, you must carefully review the draft lease to determine whether the price is for a gross lease or a net lease.
- Gross Lease: Under a gross lease, you pay a monthly fixed rent to the landlord, who then pays all operating expenses such as real estate taxes, insurance, repair costs and common area maintenance costs (CAM). Common areas include lobbies, shared bathrooms, and elevators. Some landlords cover utilities, but many do not. (Most residential leases are gross leases, while commercial and industrials leases can be either a gross or net lease.)
- Net Lease: Under a net lease, you pay rent plus a portion of the operating expenses -- which might include CAM, insurance costs and real estate taxes. These are sometimes described as a square-foot price. For example, your rent quote might state that $1.25 of the rent covers the CAM costs, which may or may not be included your portion of the property taxes. Both a double net lease (a.k.a. net-net) and triple net lease (a.k.a. net-net-net) are forms of a net lease.
Taxes and utilities can add up to hundreds or even thousands of dollars to your monthly rent, making that "cheap" space too much for your budget. If
the lease is unclear, ask the landlord if additional charges will be levied; write his/her response into the lease in clear language before
you sign. If you are working with a real estate agent, ensure that he/she helps you to identify any additional costs associated with the space.
If you have difficulty determining these costs, Chapters 16-21 provide the necessary information, resources and questions to ask when assessing a space. Once you have gathered all of the cost information, complete the worksheet.
Purchasing property is one of the largest investments you will ever make. If you plan to purchase, complete the Annual Expenses (Individual)
and Annual Expenses (Business Organizations) worksheets, which will help you to identify the upfront financial investment associated with
buying real estate.
Keep in mind that these worksheets are only a first step. You must explore other chapters of this manual in order to better assess your purchasing power, and to learn about the many options and assistance programs available to you. Chapters 8-12 offer detailed information on financing real estate purchases and various ownership models.
When thinking about ownership, consider the property's annual operations and maintenance costs. Completing the worksheets for this chapter will help you to estimate these costs, as well as purchasing and moving expenses.
If you have a particular property in mind, use the actual numbers provided by your real estate agent, the property owner or the seller's representative. Chapters 16-21 provide information on the many costs associated with leasing or owning a space.
Leasing vs. Buying
If you have completed the worksheets for Chapter One and for this chapter, you should have a clearer picture of your needs and options, as well as a
stronger grasp on the financial aspects associated with either leasing or buying space. For a graphic representation of these comparisons, complete the To Lease or Buy Comparison Chart found above using the totals from your Chapter Two worksheets.
Even after completing the worksheet, you might still be wondering which option - to lease, or to buy? - is best for you. In future chapters, we will discuss the pros and cons of each choice in greater detail. Ultimately, however, the decision is yours, and depends upon your financial abilities and your present and long-term space goals and needs.
Seattle-area property costs vary dramatically, and some neighborhoods are much less affordable than others. Even within neighborhoods, cost differences can be startling. The age and condition of a building, the time of year you are looking to purchase, and the number of open purchasing offers can all affect the final price of a space, as can access to public transportation and the proximity of amenities such as restaurants, other arts organizations and grocery stores.