Becoming a commercial property landlord often crosses the mind of those who are new to Morrisville real estate investing or even those who have owned rental properties for some time. For most investors, this is not a decision that should 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. 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.
The Pros
One of the strong attractions for investors is the income potential of investing in commercial real estate. Initially, investment in commercial property will be relatively higher than single-family residential rentals, but, in most cases, you can expect to receive a higher annual return on your investment as well. A multifamily apartment building that houses several tenants, for instance, can potentially give you rental income that exceeds your costs, ensuring a tidy 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. This helps maintain your property’s condition over the long term.
The Cons
Like anything else, the benefits of owning commercial rental properties also come with disadvantages. 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.
The more people there are in a building, the more maintenance and repair it will require. Managing property maintenance for one or more commercial buildings can be expensive and time-consuming, so you must have the budget and the dedication to do it.
Another usual risk associated with commercial rental properties is the risk of injury. As the number of people in the building increases maintenance costs, it also increases the chance of someone getting hurt or intentionally damaging the building and grounds. 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 risk-averse, it might not be a good idea to become 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. You could become a successful commercial property landlord if you follow these few tips:
- Start with Residential Properties. It is wise to start with single-family rental properties before moving to commercial buildings especially if you are new to investing in rental real estate. Owning single-family properties is usually less demanding overall.
- Be Proactive About Maintenance. As the saying goes, an ounce of prevention is worth a pound of cure. Stay on top of maintenance and repairs so you can keep your tenants in place longer, as well as protect your property’s value.
- 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. Find a trusted expert to draft your lease documents. At the same time, work with your tenant to reach a mutually beneficial agreement.
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 Raleigh is your solution. Our Morrisville 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 919-481-0008 or contact us online.
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