Becoming a commercial property landlord often crosses the mind of those who are new to Edmond 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, and apartment and mixed-use buildings. There is a particular set of know-how needed in order to effectively manage these types of buildings. 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
One of the strong attractions for investors is the income potential of investing in commercial real estate. Initially, investment in commercial property will be relatively higher than single-family residential rentals, but, in most cases, you can expect to receive a higher annual return on your investment as well. A multifamily apartment building with more than one tenant, for example, has the potential to deliver rental income much higher than your costs to ensure a good net profit each month.
One more reason investors like to invest in commercial rentals is that it allows them to work 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. Most business owners also want to keep their rented spaces in good shape, especially if they are offering products or services to the general public. This can help ensure that your property will be in good condition in the long term.
The Cons
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. Next are the larger costs and risks involved.
When you have more people in a building, maintenance and repair need usually rise as well. 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. In addition to good quality insurance to protect you from such risks, you might also need 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 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 less demanding overall.
- Be Proactive About Maintenance. As the saying goes, an ounce of prevention is worth a pound of cure. When you are on top of the maintenance and repairs of your property, not only can you keep your tenants longer, but you can protect the value of your property 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. Aside from getting an expert to draft your lease documents, you should also work with your tenants to reach an agreement that is beneficial to everyone.
In the end, you are the only person who can determine whether or not investing in commercial renal properties is a viable option. 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 Elevate is your solution. Our Edmond 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 405-876-7611 or contact us online.
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