Commercial Lease Considerations
Owning a commercial building is a lot different than owning residential property. From tenant considerations to long-term maintenance, there are certain considerations that must be made, both before and after you start marketing the building to prospective renters. In this post, I want to focus on the “before” part. It’s important that you know what you’re getting into with a commercial property, long before tenants start signing leases.
Here’s what you need to consider:
The tenants themselves.
Take a look at your tenant pool and think about who might be interested in leasing your building. Is it more likely to be a retail business? Or maybe it’s service-oriented, or industrial. Whatever it is, make sure it’s in line with your space and the surrounding properties, as well as complying with local zoning laws. Once you have identified interested tenants, inquire about their financial situation. If you want your rent paid on time, you want to be sure you’re leasing space to a successful, profit-producing business. You should also ask them about any special needs they may have, such as placing signage on the outside of the building. My point is this: know who you’re renting to and what their business is all about BEFORE the lease is signed.
Comps in your area.
Another consideration has to do with the surrounding area, and specifically, what your competition is offering. What sort of buildings are around you? Are they viable competitors? How does your building stack up compared to theirs? And finally, is your price comparable? Before leasing, do some research to find out the answers to these questions. If there’s anything you need to do to your building, like reconfigure the layout to appeal to more tenants, or upgrade any technology, take care of these matters before you start marketing. Be objective in what you have to offer, and base your rental rates on this as well as the local comps.
In my experience, very few commercial building owners manage their properties themselves. It’s an extremely time-consuming and expensive task, especially if you own a larger, multi-tenanted property. But with a property management company, this task falls to someone else, and you can’t put a price tag on the peace of mind that comes with that. You know that your tenants have someone to call when a faucet is leaking, that lawn will be mowed and maintained regularly, and that rent will be collected and processed in the most efficient way possible. Basically, you have nothing to worry about, and neither do your tenants. But before you start marketing your property, you need to locate and partner with a great property management team to ensure that everything is taken care of from Day 1. Again, perform your due diligence by making sure that the company you choose is experienced and reputable, and will handle everything you need them to.
Owning commercial property is a very lucrative endeavor. If you’re already an experienced residential investor, getting into the commercial side of things may seem like the golden ticket to financial freedom. However, there are many factors to consider before you head down this path. Do your due diligence, and make sure that you know exactly what you’re getting into before you buy and lease commercial real estate.