Becoming a commercial property landlord often crosses the mind of those who are new to Kissimmee real estate investing or even those who have owned rental properties for some time. This is definitely not a decision that an investor should make 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. You need to be knowledgeable in certain things to effectively manage buildings like these. Before deciding if investing in commercial properties is right for you, it’s important to consider both the pros and cons of doing so. In this article, we’ll take a closer look at both, as well as give a few tips on what it takes to become a good commercial property landlord.
The Pros
Most investors invest in commercial real estate for the income potential. 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.
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. Business owners are also more likely to keep their rented spaces 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
As with anything, the benefits of owning commercial rental properties also come with their own set of concerns. First, there is the larger initial investment needed to purchase a commercial property versus a residential one. Next are the larger costs and risks involved.
When you have more people in a building, maintenance and repair need usually rise as well. Property maintenance management for commercial buildings can often be expensive and time-consuming, so it is important to set aside a budget & have the dedication to do so.
Another risk related to commercial rental properties is the risk of injury. Just as the maintenance costs increase, so does the chance that someone will be hurt or damage could happen 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 investing in commercial properties will be your next business venture, you must start on the right foot. Here are a few tips for success as a commercial property landlord.
- Start with Residential Properties. If you are a newcomer to investing in rental real estate, it is best to start with single-family rental properties before you go into commercial buildings. 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. If you are on top of maintenance and repairs, not only can you possibly keep your tenants much longer, you could also protect the value of your property.
- Mitigate Risk. It is important that you bring your property up to code especially when it concerns your tenants’ health and safety. Consider investing in an alarm system, sturdy locks, and even a fire sprinkler system to help mitigate risk.
- 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.
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 make it all worth it.
Are you looking to add a new investment property to your portfolio? Real Property Management South Orlando is your solution. Our Kissimmee 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 407-982-2000 or contact us online.
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