Whether you are new to Kalamazoo real estate investing or have been owning rental properties for a while, the thought of becoming a commercial property landlord might have crossed your mind. As an investor, you should not make this decision 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 you decide if investing in commercial properties is suited for you, you must consider both the pros and cons of doing so. In this article, we will list both and will also give a few tips that will help you become a good commercial property landlord.
One of the strong attractions for investors is the income potential of investing in commercial real estate. 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. The monthly rental income you will be getting from a multi-family apartment building with several tenants will likely exceed your costs and ensure a tidy 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 helps maintain your property’s condition over the long term.
These benefits of owning commercial rental properties also come with particular downsides. First, there is the larger initial investment needed to purchase a commercial property versus a residential one. Then there are other costs and risks that are often much larger.
As the number of people using a building increases, so does the required maintenance and repair. 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 usual risk associated with commercial rental properties is the risk of injury. Just as more people in the building will increase maintenance costs, it also increases the chances of someone getting hurt or causing intentional damage to the building and grounds. On top of good quality insurance to protect you from such risks, you might also need to litigate injury claims or other lawsuits more often. Risk-averse investors may not make for an ideal commercial property landlord.
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. 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. Owning single-family properties is usually slower-paced and 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. Bring your property up to code, especially where your tenants’ health and safety is concerned. Other ways to mitigate risk are installing alarm systems, sturdy locks, or even a fire sprinkler system if needed.
- 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 draw up your lease documents, you should also be working 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 Investment Solutions is your solution. Our Kalamazoo 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 616-419-4578 or contact us online.
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