Whether you are a newbie to Lynnwood real estate investing or you already own rental properties, you could be thinking about becoming a commercial property landlord. 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 is a particular set of know-how needed in order to effectively manage these types of buildings. You have to carefully consider the pros and cons of investing in commercial properties if ever you decide to do so. Here, we will take a look at both and learn some tips on becoming a good commercial property landlord.
The Pros
Most investors invest in commercial real estate for the 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.
One more reason investors like to invest in commercial rentals is that it allows them to work 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. Most business owners also want to keep their rented spaces in good shape, especially if they are offering products or services to the general public. This can help you more easily maintain your property’s condition over the long term.
The Cons
As with anything, the benefits of owning commercial rental properties also come with their own set of concerns. 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. 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 getting quality insurance to protect you from such risks, it may also be necessary 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 do invest in commercial properties as a new business venture, it is important to start on the right foot. 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 generally 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. 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. Bring your property up to code, especially where your tenants’ health and safety is concerned. 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.
In the end, you are the only person who can determine whether or not investing in commercial renal properties is a viable option. 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 Eclipse is your solution. Our Lynnwood 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 425-209-0252 or contact us online.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
