Investors who are new to Hawthorne real estate investing or those who currently own rental properties both have usually thought about being commercial property landlords. For many investors, this is a decision one should not 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 deciding if investing in commercial properties is right for you, it’s important to consider both the pros and cons of doing so. In this article, we’ll take a closer look at both, as well as give a few tips on what it takes to become a good commercial property landlord.
The Pros
When investing in commercial real estate, investors always look for income potential. 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. 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.
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
The benefits of owning commercial rental properties also come with their own set of 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. 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 risk related to commercial rental properties is the risk of injury. As an increased 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 a newcomer to investing in rental real estate, it is best to start with single-family rental properties before you go into 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. 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. It is important that you bring your property up to code especially when it concerns your tenants’ health and safety. Consider investing in an alarm system, sturdy locks, and even a fire sprinkler system to help mitigate 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.
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 California Coast is your solution. Our Hawthorne 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 310-535-2150 or contact us online.
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