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Should You Become a Commercial Property Landlord?

November 30, 2021
commercial landlord

Whether you like it or not, winter is coming.

The most important factor to consider when staring down the barrel of at least 3 months of sub-zero temperatures is preparedness. Here are a few helpful tips that will keep you (and your property) on track and worry free as we move into the holiday season.

 

1. Know your roof’s maximum snow load

When it comes to the weight of snow, the type of snow is as important as the depth of the snow. Fresh powder snow is typically lighter than wet packed snow, and ice is heavier than snow.

There are several contributing factors to the acting load on your roof that include snow drifts from adjacent buildings or mechanical equipment, heavy rain on snow, and melting snow that refreezes.

If you don’t know your roof’s snow load, hire a structural engineer to verify the snow load threshold of the roofing system. This information will be important after an event when determining if there is too much snow on the roof.

 

2. Prevent plumbing from freezing

  • Inspect and seal or repair all cracks, holes, leaks, windows, doors, and other openings on exterior walls with caulk or insulation to prevent cold air from penetrating the wall cavity.
  • Insulate and seal around attic penetrations such as partition walls, vents, plumbing stacks, and electric and mechanical chases.
  • Make sure your pipes in hard-to-reach places like attics, crawl spaces, and along outside walls are insulated. Wrap pipes and faucets in unheated or minimally heated areas of the building.
  • Make sure your existing freeze-protection devices and alarms are in good working order.
  • Test freeze stats (low temperature sensing device) and valves before the weather gets cold.
  • Pipes leading to the exterior should be shut off and drained at the start of winter. If these exterior faucets do not have a shut-off valve inside the building, have one installed by a plumber.
  • Hire a licensed fire protection specialist to conduct routine maintenance on your sprinkler system. Discuss the systems exposure to winter weather and potential mitigation options.

 3. Winterize your landscaping and irrigation

  • Keep all bushes and trees trimmed and away from the building. Trees with branches near or hanging over your building can damage the roof cover, siding, and windows.
  • Pay particular attention to trees within falling distance of overhead power lines leading into the property. Avoiding a power outage can save a day or two of business interruption.
  • Shut off and drain irrigation systems and outdoor hoses.

 4. Maintain your HVAC system

  • Schedule preventative maintenance and make sure the system is operating properly and efficiently.  Be sure to change any air filters and check that exhaust gases are being ventilated properly.
  • Select a heating system repair service before an unexpected outage or maintenance issue arises mid-season. Loss of heat for even a few hours could significantly disrupt your business during a cold snap.
  • Have someone ready to come quickly – including after hours – and negotiate an emergency rate in advance.

5. Service your generator.

The time to maintain a generator is well before a major snowstorm or disaster strikes (when professional assistance may be unavailable, power lines are down, and access roads are blocked). Backup power can help maintain a consistent building temperature and reduce the risk of freezing pipes leading to business disruption and damage.

 Permanent:

  • Permanent generators should have a proper maintenance plan that includes weekly, monthly, and annual checks. See the manufacturer’s specifications for more information.
  • Run the unit weekly on its maintenance plan to ensure it is properly functioning in case of an emergency. Individual units may have a timer that allows a programmed test to be scheduled. Qualified personnel should oversee these scheduled weekly tests.
  • Check the generator enclosure for loose debris or other conditions that could cause the unit to not function properly.

Portable:

  • Store in a dry location.
  • Set up a maintenance schedule to include periodic test runs for the unit

6. Check your roof and gutters

    Water that does not properly drain off a roof has the potential to freeze, adding to snow load and creating ice dams. Ice dams can add significant additional loads to the roof and could cause interior water damage if left unattended. It is important for your team to maintain the roof drains and gutters.

    Low slope (flat) roofs:

    • Inspect roof and repair leaks before winter season.
    • Remove all debris and other items from roof and roof drainage systems that prevent drainage of water from the roof during the melting process.
    • Check that all flashing and seals are flush and secure.

    Steep slope roofs:

    • Inspect your roof and repair leaks before winter season.
    • Secure loose shingles.
    • Check roof-edge waterproofing and seal to prevent potential drafts.
    • Add extra insulation in your attic or surrounding areas.

    Gutters:

    • Inspect gutters and ensure they’re secured to the building. Replace any missing gutter fasteners.
    • Clean gutters and interior downspouts thoroughly, removing all debris and unclogging drains.
    • Run test of gutters and downspouts to be sure water does not back up. This can be done by using a hose.
    • Check downspouts to ensure they divert water away from the foundation.

     7. Create a business continuity plan

    • Have a plan for communicating with employees across multiple channels (text, email, phone).
    • Have an emergency/recovery plan that is communicated to employees, customers, clients, delivery, etc.
    • Create a snow and ice removal plan for all roofs and grounds.
    • Plan for emergency snow removal in event of heavy accumulation. Identify and supply proper equipment and check it in advance of predicted snow.
    • Some businesses rely on on-street parking, so develop a back-up plan for nearby off-street parking if the municipality imposes a parking ban on streets (for plows). This occurs more frequently in the north, even hours before snow is expected, so they can pre-treat the roads.
    • Purchase and be ready to add non-slip water absorption mats to all entrances for both your employees and customers to capture water and snow as they enter your business and to minimize slips and falls.
    • Test/practice the plan.

    8. Check your insurance coverage and inventory valuable equipment

    • Know what your insurance covers and what it doesn’t
    • Keep your insurance agent’s contact in your phone
    • If you have a loss due to a winter-related event, you’ll have to itemize your losses for your insurance company. Take a complete inventory of your home and store it somewhere safely offsite.

    NOTE: Check in with tenants regarding any maintenance requests or building concerns they may have. Living or working in your commercial property means they are on constant alert to their surroundings. If they see, hear, or smell something, ask that they say something.

    Becoming a commercial property landlord often crosses the mind of those who are new to real estate investing or even those who have owned rental properties for some time. For most investors, this is not a decision that should be made lightly. That is because owning and managing residential rentals is very different from owning and managing commercial properties.

    By definition, a commercial property could include retail, industrial, office buildings, commercial condos and mixed-use buildings. There are things you must know so you can manage these types of buildings well. You must carefully consider the pros and cons of investing in commercial properties if ever you decide to do so. This article will give you a closer look at both, as well as give some tips for becoming a good commercial property landlord.

    The Pros

    One of the strongest attractions for investors is the income potential of investing in commercial real estate. Even when initial investment in commercial property will be much higher than single-family residential rentals, a higher annual return on your investment can be expected. A multifamily apartment building that houses several tenants, for instance, can potentially give you rental income that exceeds your costs, ensuring a tidy net profit each month.

    Many investors like investing in commercial rentals because it allows them to interact with their tenants more professionally. If you own retail or office buildings, your tenants will be business owners, which will help you keep your relationships with your tenants polite and professional. Business owners are also more likely to keep their rented spaces in good shape, especially if they offer products or services to the general public. This can help you more easily maintain your property’s condition over the long term.

    The Cons

    As with anything, the benefits of owning commercial rental properties also come with their own set of concerns. The larger initial investment you must make to purchase a commercial property is already a given. But there are other costs and risks involved as well.

    If there are more people using a building, naturally maintenance and repair needs will also increase. Managing property maintenance for one or more commercial buildings can be expensive and time-consuming, so you must have the budget and the dedication to do it.

    Another risk related to commercial rental properties is the risk of injury. In the same way that an increase in the number of people will increase maintenance costs, it increases the chance that someone will get hurt or do intentional damage to the building and grounds as well. Aside from getting quality insurance to protect you from such risks, it may also be necessary to litigate injury claims or other lawsuits more often. If you are very risk-averse, you might want to rethink being a commercial property landlord.

    Tips for a Commercial Property Landlord

    If you do invest in commercial properties as a new business venture, it is important to start on the right foot. Here are a few tips for success as a commercial property landlord.

    • Start with Residential Properties. It is more advisable for those who are new to investing in rental real estate to start with single-family rental properties before moving to commercial buildings. Owning single-family properties is usually less demanding overall.
    • Be Proactive About Maintenance. As the saying goes, an ounce of prevention is worth a pound of cure. Stay on top of maintenance and repairs so you can keep your tenants in place longer, as well as protect your property’s value.
    • Mitigate Risk. Make sure you bring your property up to code, especially when it concerns your tenants’ health and safety. An alarm system, sturdy locks, and even a fire sprinkler system are good investments to manage risk.
    • Learn to Negotiate. Commercial leases are less predictable than those used for residential rental properties. You can negotiate almost anything. Find a trusted expert to draft your lease documents. At the same time, work with your tenant to reach a mutually beneficial agreement.

    In the end, only you can decide whether you will invest in commercial rental properties or not. Most commercial property landlords find the job challenging, with competing demands on their time. But the payoffs make it all worth it.

    Are you looking to add a new investment property to your portfolio? Servis Realty Inc is your solution. Our property managers work with investors like you to help you find off-market deals, efficiently manage your property, and much more! You can call us at 780-415-5414 or contact us online.

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