Whether you are new to Central real estate investing or have been owning rental properties for a while, the thought of becoming a commercial property landlord might have crossed your mind. As an investor, you should not make this decision 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. There are certain things you must know to manage buildings like these effectively. You have to carefully consider the pros and cons of investing in commercial properties if ever you decide to do so. In this article, we will list both and will also give a few tips that will help you become a good commercial property landlord.
The Pros
One of the strong attractions for investors is the income potential of investing in commercial real estate. Even though an initial investment in commercial property will be much higher than single-family residential rentals, this usually gives a higher annual return on your investment. The monthly rental income from a multi-family apartment building with several tenants will likely exceed your costs and ensure a tidy net profit each month.
Many investors invest 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. An added benefit of dealing with business owners is that they are more likely to keep their rented areas in good shape, especially if they offer products or services to the general public. With this, your property’s condition becomes easier to maintain over the long term.
The Cons
Like anything else, the benefits of owning commercial rental properties also come with disadvantages. 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.
The more people there are in a building, the more maintenance and repair it will require. 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. As the number of people in the building increases maintenance costs, it also increases the chance of someone getting hurt or intentionally damaging the building and grounds. 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. Being a commercial property landlord might not be for people who are strongly risk-averse.
Tips for a Commercial Property Landlord
If you are keen on investing in commercial properties for your next business venture, you have to make sure you start it right. Here are a few tips for finding success as a commercial property landlord.
- Start with Residential Properties. If you are just starting to invest in rental real estate, it would be helpful to start with single-family rental properties before acquiring commercial buildings. Owning single-family properties is usually slower-paced and 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. Other ways to mitigate risk are installing alarm systems, sturdy locks, or even a fire sprinkler system if needed.
- Learn to Negotiate. Commercial leases are less predictable than those used for residential rental properties. Almost everything can be negotiated. Get a trusted expert to help draft your lease documents and work with your tenants to reach an agreement that is favorable to all parties.
Finally, the only one who can decide whether investing in commercial rental properties is a good fit is you. Most commercial property landlords find the job challenging, with competing demands on their time. But the payoffs can make all the hard work worth it.
Are you looking to add a new investment property to your portfolio? Real Property Management Baton Rouge is your solution. Our Central 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 225-389-6860 or contact us online.
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