Whether you’re new to Brookfield real estate investing or you have owned rental properties for some time, you might have considered becoming a commercial property landlord. 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 are things you have to know in particular so you can manage these types of buildings well. Considering both the pros and cons is imperative before deciding if investing in commercial properties is right for you. Here, we will take a look at both and learn some tips on becoming a good commercial property landlord.
The Pros
When investing in commercial real estate, investors always look for income potential. The annual return on your investment will usually outweigh your much bigger initial investment in commercial property. These properties usually cost more than single-family residential rentals upfront. 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.
Investors also like investing in commercial rentals because it lets them work with the 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 benefit of dealing with business owners is that they tend to keep their rented areas in good shape, especially if they offer 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
The benefits of owning commercial rental properties also come with their own set of downsides. First, there is the larger initial investment needed to purchase a commercial property. In addition to that are other, usually larger, costs and risks involved.
If there are more people using a building, naturally maintenance and repair needs will also increase. 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 common 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. 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. If you are very risk-averse, you might want to rethink being a commercial property landlord.
Tips for a Commercial Property Landlord
Once you decide to invest in commercial properties for your next business venture, you must start right. Here are a few tips to become a successful commercial property landlord.
- Start with Residential Properties. It is more advisable for those who are new to investing in rental real estate to start with single-family rental properties before moving to 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. The benefits of effective maintenance and repairs include keeping your tenants longer, as well as protecting the value of your property.
- 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, if needed, will help you manage risks.
- 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 payoff can make all the hard work worth it.
Are you looking to add a new investment property to your portfolio? Real Property Management Greater Milwaukee is your solution. Our Brookfield 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 262-309-6961 or contact us online.
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