Whether you’re new to Magnolia real estate investing or you have owned rental properties for some time, you might have considered becoming a commercial property landlord. This is definitely not a decision that an investor should make 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. Considering both the pros and cons is imperative before deciding if investing in commercial properties is right for you. This article will give you a closer look at both, as well as give some tips for becoming a good commercial property landlord.
The Pros
When investing in commercial real estate, investors always look for 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 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. With this, your property’s condition becomes easier to maintain over 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. Property maintenance management for commercial buildings is usually expensive and time-consuming, so it is important that you set aside a budget & have the dedication to do so.
Another risk related 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. 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 very risk-averse, you might want to rethink being 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. Up next are a few tips to find 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. 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. Ensure that you bring your property up to code, especially when it comes to your tenant’s 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. 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.
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 Republic is your solution. Our Magnolia 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 281-362-5001 or contact us online.
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