5 Things You Must Know Before Purchasing Commercial Property
As a commercial real estate brokerage firm in Northern Virginia focusing on the representation of commercial property owners, we understand that becoming an investor and landlord can be a very attractive way towards building wealth and creating monthly cash flows. However, it’s essential to understand that being a good and profitable landlord requires proper preparation and active participation, with few exceptions such as triple net investments. And if that is what you are pursuing then you can save a couple of minutes and stop reading here. So here are the top five things you need to know before becoming a commercial property landlord.
There is no such thing as passive income!
Being a commercial property landlord is not a passive activity or investment, it requires an active role in managing the property. It involves marketing, tenant screening, property maintenance, income and expense forecasting and often delinquent rent collection. This requires time, effort, and resources, which can be a shock for first-time landlords.
Have a reserve fund.
Prepare for your property to have periods of vacancy and decreased rent income depending on the number of tenants you have. Vacancies are an inevitable part of owning commercial property, and as a landlord, you must prepare for these periods when no or less rent is coming in. Having a reserve fund to cover these costs can help alleviate the stress of unexpected vacancies.
Who’s going to manage it?
Managing a property can be time-consuming. As mentioned earlier, managing a commercial property involves multiple responsibilities. Tenant relations, maintenance, and rent collection can be time-consuming, and first-time landlords often underestimate the time and skills required for these tasks.
Be prepared for maintenance and repairs.
You need to have a capital reserve fund. In most cases owning commercial property means you’re responsible for some maintaining the property and paying for some or all of it depending on the type of property and lease structure. You should have a plan in place for regular maintenance and unexpected repairs to avoid costly surprises down the line. It’s essential to have a reserve fund to cover these expenses.
Do your homework.
Understand what the current market rental rates are and the average lease-up time to get your building occupied so you can properly budget the amount of income and when you can reasonably expect it to come in. Before investing in commercial property, it’s crucial to understand the local market and rental rates so you can properly evaluate your expected return on investment. So much of the success of your investment property is predicated on the due diligence you do before hand and building a strong team around you to make these decisions is key. You should research the demand for commercial space in your area, the average rental rates, and the types of tenants that typically occupy commercial space. This information can help you determine whether the property is a sound investment and ensure you’re charging a fair rental rate.
The wealth generating benefits of becoming a commercial property landlord will require active participation no one is just going to mail you money for nothing. Being a successful landlord in the long run should be seen as a partnership with your tenants. The tenant is your customer and there is an implicit relationship on both parties to work towards each other’s mutual benefit. To learn more detailed tips on the purchasing commercial real estate you can click through to read more about the Tartan Process.
Mike Porterfield is commercial real estate advisor with twenty years of experience in the Northern Virginia commercial real estate market. You can find him on Instagram @theCREbroker. Tartan Properties Commercial is an independent commercial real estate brokerage and consulting firm focused on office, industrial, and flex properties that provides creative and professional solutions for its clients’ real estate needs. You can find us on all social media platforms @tartanproperties.
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