Whether you’re a newbie to Utah County real estate investing or have owned rental properties for quite a while, you may be thinking of eventually becoming a commercial property landlord. For many investors, this is not an action that should be decided upon without consideration. This is because owning and managing residential rentals is very different from owning and managing commercial properties.
A commercial property, by its definition, could consist of retail, industrial, office buildings, and apartment and mixed-use buildings. To successfully manage these different types of buildings, there are many things you should know. In preparation for deciding if investing in commercial properties is favorable for you, it’s critical to take into account both the pros and cons of doing so. From here on, we’ll look more closely at both, as well as touch on quite a few tips on what it takes to become a good commercial property landlord.
The Pros
When investing in commercial real estate, one of the solid reasons that attract investors is the income potential. While taking note, your initial investment in commercial property will be much higher than single-family residential rentals, on the other hand, you can truly expect a higher annual return on your investment. A multi-family apartment building with many tenants, for example, can bring you a rental income exceeding your costs enough to secure a tidy net profit each month.
Various investors additionally like to invest in commercial rentals given that it affords you to work with your tenants more professionally. If you own retail or office buildings, your tenants will be business owners, which will encourage you to keep your relationships with your tenants polite and professional. Furthermore, business owners are oftentimes diligent to maintain their rented spaces in a fine state, primarily if they offer products or services to the general public. This can aid you to more effectively maintain your property’s condition over the long term.
The Cons
Even with the benefits of owning commercial rental properties, there are some issues and challenges. We’ve already talked about the larger initial investment you can anticipate having in order to purchase a commercial property. But over and above that, there are other, oftentimes larger, costs and risks that are involved too.
The more people occupying a building, the more maintenance and repair it will require. Staying on top of property maintenance for one or more commercial buildings can be a financially taxing and time-consuming task, so it’s significant to make it a point that you have the budget and the dedication for this purpose.
Another risk in regard to commercial rental properties is the risk of injury. Just as larger numbers of people will increase maintenance costs, it additionally magnifies the chance that someone will be hurt or cause intentional damage to the building and grounds. Not only will you need top-quality insurance to help protect you from such risks, but as a matter of fact, it may similarly be imperative to litigate injury claims or other lawsuits more often. If you are totally risk-averse, being a commercial property landlord may not be suitable for you.
Tips for a Commercial Property Landlord
If you opt to invest in commercial properties for your next business venture, it’s crucial to get going on the right foot. To find a favorable outcome as a commercial property landlord, here are a few tips to doing an excellent job:
- Start with Residential Properties. If you are inexperienced in investing in rental real estate, it can be advantageous for you to kick off with single-family rental properties in preparation for moving to commercial buildings. Acquiring single-family properties is considerably slower-paced and could definitely be less demanding for you.
- Be Proactive About Maintenance. As the saying goes, an ounce of prevention is worth a pound of cure. By staying on top of maintenance and repairs, not only can you keep your tenants in place for quite a long time, but happily, you can additionally protect the value of your property.
- Mitigate Risk. If you haven’t already, you should do something to bring your property up to code, particularly where your tenants’ health and safety is concerned. Take into account placing an alarm system, sturdy locks, and even a fire sprinkler system, if right and appropriate, to help you control risk.
- Learn to Negotiate. Commercial leases are less typical than those used for residential rental properties. Roughly everything can be negotiated. Not only will you need to have an expert you can trust to help you draft your lease documents, although you can and should work with your tenants to create an agreement that will be of advantage to everyone.
Finally, only you can decide whether investing in commercial rental properties is an appropriate choice for you. Various commercial property landlords find the job burdensome, with competing demands on their time. Though, indeed, the rewards can make all the hard work and challenges worth it.
Are you thinking about adding a new investment property to your portfolio? Real Property Management Utah County is your solution. Our Utah County 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 801-889-1517 or contact us online.
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