Whether you are new to White Plains 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. You need to be knowledgeable in certain things to effectively manage buildings like these. You have to carefully consider the pros and cons of investing in commercial properties if ever you decide to do 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
One of the strongest attractions for investors is the income potential of investing in commercial real estate. Even though an initial investment in commercial property will be much higher than single-family residential rentals, this usually gives a higher annual return on your investment. 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.
Many investors like investing 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. 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 you more easily maintain your property’s condition over the long term.
The Cons
These benefits of owning commercial rental properties also come with particular downsides. The larger initial investment you have to make to purchase a commercial property is already a given. But there are other costs and risks involved as well.
When you have more people in a building, maintenance and repair need usually rise as well. To always be on top of property maintenance for various commercial buildings can become an expensive and time-consuming task, so it is important to have the budget and dedication to really do so.
Another risk common to 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. You might need more than just good quality insurance to help protect you from such risks as you might need to litigate injury claims and 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
If you are keen on investing in commercial properties for your next business venture, you have to make sure you start it right. Here are a few tips for finding 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 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. Make sure 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. 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.
In the end, only you can decide whether or not you will invest in commercial rental properties or not. 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 Gold is your solution. Our White Plains 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 301-392-2172 or contact us online.
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