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.
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.
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.