Things to Know Before Becoming a Commercial Landlord
Things to Know Before Becoming a Commercial Landlord
Investing in commercial property is one of the best and fastest ways to prosperity. If, for example, you look at lists with the wealthiest people in the country, you will find a good number of commercial real estate investors. Unfortunately, becoming a commercial landlord is not easy and, more importantly, requires a significant initial investment.
If you are still interested in investing in rental property, despite all potential obstacles, this article will tell you the most critical things you need to know before becoming a commercial landlord.
Calculating a potential profit is not as straightforward as it seems
Since you are entering the game of commercial real estate because of profit, the first thing you need to consider is your potential gains. And when it comes to purchasing commercial property for future renting, commercial property owners use commercial real estate return on investment (ROI) to calculate their potential return. But what is a good ROI, and how to calculate it? The most basic formula looks like this – (Gain – Cost) ÷ Cost.
Of course, this is the most fundamental equation, and you can use numerous other variables for calculating ROI. When it comes to actual numbers, 10% or above can be considered a good ROI. Still, bear in mind that ROI is not actual profit. It is simply a tiny percentage of gain a commercial property owner can expect from the investment. To realize ROI as actual profit, the property needs to be sold.
Don’t invest in commercial real estate if you do not have any previous experience
As we have already mentioned, becoming a commercial landlord is not easy. You need to consider and think about many things before you decide on this venture. Therefore, the general advice is to gain some experience first. Maybe as a residential property landlord or a property manager. The residential real estate business is more straightforward than the commercial, so it is an excellent place to start. Also, it would be wise to follow commercial real estate trends regularly to make the best decision regarding your future investment.
A commercial real estate business is far more complicated than residential
If you are entering the game of commercial real estate with previous residential experience, know that things will be far more complicated. For example, when you are renting residential property, not paying for rent can be a reason for eviction. In commercial real estate, you need to make sure that you’ve gone through all legal processes before removing your leaseholder. Therefore, make sure that you have good legal support before becoming a commercial property owner.
Choosing the wrong type of space could end your venture before it begins
Choosing the right type of space is also one of the things that you need to think about before you invest. Of course, location is one of the most important things to consider. However, you should also decide whether you want to invest in retail premises, office space, warehouse space, etc. For example, retail premises are the most profitable. However, there are also certain downsides to investing in this type of commercial space. Retail leased premises are covered by a separate legal action that favors tenants rather than standard commercial premises where landlords enjoy more legal protection. Before investing in a property, it is essential to understand whether your property is legally regarded as a retail space or not.
Think well before you decide on the type of lease
Another thing you need to consider is the type of lease. Will you decide on a month-to-month rental agreement or a long-term lease? The month-to-month rental agreement allows you to charge more. However, be ready for far more complications than when signing a long-term lease with your tenants. Nevertheless, since both options have their pros and cons, it would be wise to think well before deciding.
Dealing with tenants may be the most challenging part of the job
Being a landlord is complicated not only because of legal matters. Dealing with tenants can be the biggest problem you will have to face during this undertaking. Luckily, commercial landlords have fewer issues than those dealing with residential properties simply because they deal with professionals, not individuals. Nevertheless, there will be many things that you will have to do as a commercial landlord right from the start. Ok, your new tenants can rely on expert assistance and hire moving services when moving into your new space. That is something that you do not have to participate in. But that is about it. Once they move into your space, you will be in charge of safety, maintaining the property, etc. That is something that you have to be ready for.
A professional property manager can make a big difference
Maintaining a commercial premise can drive off many potential commercial real estate investors simply because it requires a lot of time and money. Still, there is a simple solution for this problem: hire a professional property manager who will maintain your property for you. They do not cost much and are more than helpful for commercial landlords that own more than one property.
Becoming a commercial landlord can be a decision of your life
As you can see, becoming a commercial landlord requires a lot of thinking, planning, and calculating. Nevertheless, if you do everything right, it can be one of the best decisions you make in your life. Be careful, empathic, and thoroughly check your tenants, especially if you decide on a long-term lease.