Investors who are new to Tarpon Springs real estate investing or those who currently own rental properties both have usually thought about being commercial property landlords. 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. There is a particular set of know-how needed in order to effectively manage these types of buildings. Before you decide if investing in commercial properties is suited for you, you must consider both the pros and cons of doing so. Here, we will see both, as well as learn some tips to help you become a good commercial property landlord.
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. The monthly rental income you will be getting from a multi-family apartment building with several tenants will likely exceed your costs and ensure 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.
These benefits of owning commercial rental properties also come with particular downsides. In the first place, you will need to make a larger initial investment to purchase a commercial property. Then there are other costs and risks that are often much larger.
As the number of people using a building increases, so does the required maintenance and repair. Being on top of property maintenance for commercial buildings can be a costly & time-consuming task, so you have to have the budget and dedication to do so.
Another usual risk associated with 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 good quality insurance to protect you from such risks, you may also need to litigate injury claims or other lawsuits more often. If you are risk-averse, it might not be a good idea to become a commercial property landlord.
Tips for a Commercial Property Landlord
Make sure you start right should you decide to invest in commercial properties for your next business venture. You could become a successful commercial property landlord if you follow these few tips:
- 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. Owning a single-family property is more slow-paced and generally less demanding.
- 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. 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. Aside from getting an expert to draw up your lease documents, you should also be working with your tenants to reach an agreement that is beneficial to everyone.
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 TradeWinds is your solution. Our Tarpon Springs 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 727-400-4722 or contact us online.
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