Are you considering investing in commercial property and wonder about commercial property management? This article covers some basic information to get you started.
In this article:
- What Basics Do I Need to Know About Commercial Property Management?
- How Can I Finance a Commercial Property?
- What Are the Duties of a Commercial Property Manager?
- What Commercial Property Management Software is Available?
- How Much Profit Can I Make in Commercial Property Management?
- How Should I Manage My Commercial Property?
- Do’s & Don’ts
Commercial Property Management FAQs
Commercial real estate investing and commercial property management is all around us, and for many people, this goes unnoticed. Offices, apartments, retail space, hotels, warehouses, and other such buildings all fall into the commercial category.
As a general rule, commercial property investments need much expertise, time, and capital than other investments, though there are also options for investing in a property portfolio.
While stocks and bonds have high liquidity, commercial real estate is considered a hard asset and relatively illiquid.
The two main reasons why people choose to invest is for income and appreciation. Revenue from the operation from the building (rental income), and through the increase in the property value over time.
What Basics Do I Need to Know About Commercial Property Management?
– It’s essential to do lots of research and get educated before you purchase a property. This can quickly be done online, using free or paid resources. There is a wealth of real estate information on the internet.
Learn how to understand the market, what’s available in terms of the types of properties, property classes (A-D), and how the properties need to be managed. Inexperience can throw new investors off guard and potentially scare off tenants.
– Learning the legal side of commercial property management is probably the key to success. Having a proper lease agreement will ensure you’re covered if things turn sour. Seek a reputable lawyer to get a legally binding lease that covers all tenancy aspects and covers both the landlord and the tenant. Know what different leases are available, including net leases.
How Can I Finance a Commercial Property?
– Commercial property loans are different from residential property loans. Most commercial investors will need to satisfy higher income standards and provide proof of being able to make a substantial financial commitment.
– Interest rates depend on the current prime rate, and they can be fixed or floating. Loan terms are generally longer than residential loans but rely on the lease length, though, that does mean less profit overall from paying more interest in the long run.
– Down payments are typically between 20 and 30 percent.
– Multi-Family financing includes agency lending (for properties over $1 million) and traditional lending. The former has an amortization period of 30 years with a low fixed interest rate, and the latter is 25 years and a rate between 5-6 percent.
What Are the Duties of a Commercial Property Manager?
– Essentially, once your tenant signs the lease, ensure you follow through on all the requirements of the lease that you are liable for.
– Duties include repairs, maintenance, finding tenants, rent collection, evictions, and legal compliance.
What Commercial Property Management Software is Available?
– There are different software options for real estate investors and managers on the market, regardless of whether you have one property or hundreds. The technology can be tailored for any property type, including residential, commercial, or multi-family portfolios.
– Features can vary, but the basics typically include billing, accounting, maintenance management, reporting, online finances, and any communication. Pricing can reflect the degree of options and the number of properties or user licenses required.
How Much Profit Can I Make in Commercial Property Management?
– Leasing your property and charging tenants’ rent will produce cash flow or revenue. The money flows through a fund and can be released as dividend distributions if there are a number of investors.
– Operating expenses and other factors will determine the amount of profit made, but ensuring the occupancy is high is key to steady cash flow.
– All properties also have the potential for appreciation, but economic factors can influence gains. Generally, commercial property is a scarce asset class, as land cannot be created. This scarcity increases demand, and prospective buyers are likely to be willing to pay a higher price than you did originally.
– Adding value to the property by making improvements is another option to increase value through higher rents and appreciation.
How Should I Manage My Commercial Property?
– Making sure your tenants are happy will make you more profitable in the long term and make your life easier. Communicate often and treat them like your customers. The longer they stay, the better your turnover rates will be – finding replacements can be an expensive and lengthy process. Having no income because of a vacant property can wipe out any profits made.
– You can also hire a property manager or a property management company to do the work for you, though this will eat away at any profits. The gains can be worth it, though, as commercial property managers will be aware of market trends and make your property more attractive to potential tenants, decreasing any vacant periods.
– Make timely repairs and ensure all maintenance is kept up-to-date. This links back to keeping your tenants happy. Also, if there are maintenance problems, procrastinating can cause more issues and expenses.
– Treat the property as an investment, like other assets, and don’t overspend on things that have no worth.
Do's & Don'ts
- Don’t jump into a purchase without taking the time to understand the industry.
- Don’t make any decisions without consulting legal and professional advice.
- Take your time before making any decision.
- Consider working in the industry before making your purchase.
- Have a good lease agreement.
- Test out free property management software demos and make life easier for yourself.
- Look after your tenants and make them feel at ‘home.’
- Consider hiring a professional, who will be familiar with property marketing and what tenants are looking for.
What are your thoughts about commercial property management? Are you considering investing in this industry? Let us know in the comments section below.