Whether you’re new to Exeter real estate investing or you have owned rental properties for some time, you might have considered becoming a commercial property landlord. 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, and apartment and mixed-use buildings. You need to be knowledgeable in certain things to effectively manage buildings like these. You have to carefully consider the pros and cons of investing in commercial properties if ever you decide to do so. Here, we will see both, as well as learn some tips to help you become a good commercial property landlord.
The Pros
When investing in commercial real estate, investors are usually drawn by its income potential. Even if the initial investment in commercial property will be much higher than single-family residential rentals, this usually gives a higher annual return on your investment. For example, a multifamily apartment building that can accommodate several tenants can give you enough rental income to exceed your costs and ensure you a tidy net profit each month.
Another reason why investors find investing in commercial rentals attractive is that it lets you work with your 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. Another upside is that business owners usually like to keep their rented areas in good shape, especially if they offer products or services. This can help you more easily maintain your property’s condition over the long term.
The Cons
These benefits of owning commercial rental properties also come with particular downsides. First, there is the larger initial investment needed to purchase a commercial property. But there are additional, usually larger, costs and risks that are involved as well.
When you have more people in a building, maintenance and repair need usually rise as well. Property maintenance management for commercial buildings can often be expensive and time-consuming, so it is important to set aside a budget & have the dedication to do so.
Another risk common to commercial rental properties is the risk of injury. Just as the maintenance costs increase, so does the chance that someone will be hurt or damage could happen to the building and grounds. You might need more than just good quality insurance to help protect you from such risks as you might need to litigate injury claims and other lawsuits more often. Being a commercial property landlord might not be for people who are strongly risk-averse.
Tips for a Commercial Property Landlord
If investing in commercial properties will be your next business venture, you must start on the right foot. Here are a few tips for finding success as a commercial property landlord.
- Start with Residential Properties. If you are new to investing in real estate, you might want to start with single-family rental properties before moving to commercial buildings. Single-family properties are a bit easier to manage and tend to be less demanding.
- Be Proactive About Maintenance. As the saying goes, an ounce of prevention is worth a pound of cure. Make sure to stay on top of maintenance and repairs so you can keep your tenants in place for a longer time, and protect your property’s value as well.
- Mitigate Risk. Bring your property up to code, especially where your tenants’ health and safety is concerned. Look into investing in an alarm system, sturdy locks, and even a fire sprinkler system to help you manage risk.
- Learn to Negotiate. Commercial leases are less predictable than those used for residential rental properties. Almost everything can be negotiated. Let a trusted expert draw up your lease documents, and, at the same time, work with your tenant to reach an agreement that is favorable to both parties.
In the end, you are the only one who can decide if investing in commercial rental properties is for you. Most commercial property landlords find the job challenging, with competing demands on their time. But the payoffs can make all your efforts worth it.
Are you looking to add a new investment property to your portfolio? Real Property Management Seacoast New Hampshire is your solution. Our Exeter 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 603-343-2202 or contact us online.
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