Commercial real estate took a few interesting turns since the beginning of the pandemic. In 2020, revenue dropped by nearly 18% as businesses discovered they didn’t need office space.
The growth of ecommerce created the
demand for warehouse space. This is fueling the recovery of the commercial real
estate market.
It’s a great time to get into
commercial real estate, but it comes with a lot of responsibility. As the owner
of commercial property, you have to consider these responsibilities so you can
build a profitable business.
What are your responsibilities as a
commercial real estate landlord?
Read on to learn what you’re
responsible for as a commercial property owner.
Set
Rent and Fees
Your first job is to set the
commercial property rental fees. They need to be competitive to attract tenants,
but you have to make money, too.
There are a couple of ways to charge
rent. One way is to charge by square foot. Another is to charge a percentage of
the gross income.
Under a percentage lease, the tenant
agrees to pay a minimum amount of rent. The landlord and tenant agree to a
percentage that’s paid in addition to the base amount.
A percentage lease gets used for
large tenants, such as anchor tenants in a mall or shopping center.
Tenants also pay common area
maintenance fees (CAM).
Find
Quality Tenants
One of the benefits of owning
commercial property is that it’s a stable investment compared to stocks. You
can add to that stability by finding stable businesses to occupy the building.
It’s your responsibility to vet
tenants and make sure that they can pay the rent.
Another responsibility is to have a
lease that protects your rights and responsibilities and those of the tenant.
This is a legal document, so have an attorney review it thoroughly.
Meet
Health and Safety Requirements
Landlords have to comply with local
safety regulations and building codes. This varies between municipalities.
Some things to consider are
electrical safety, gas safety, and asbestos management. There has to be
adequate light and ventilation in the building.
Since the commercial property is
accessible to the public, it needs to comply with the requirements of the
Americans with Disabilities Act.
Pay
Taxes
An owner of a commercial property
has to pay property taxes. Property taxes are much higher for commercial
properties than they are for residential properties.
Landlords have to pay taxes on
rental income. They may have to pay capital gains taxes if they sell the
property.
Repairs
and Maintenance
It’s among the landlord's
responsibilities to repair and maintain the building. If you want to attract
the best tenants, you need to ensure that the building doesn’t just meet the
minimum safety standards.
You want to have a commercial
property that tenants are proud of. They’d want to show off their location to
clients and are willing to pay more for it.
Commercial
Landlord Expenses
Yes, there are more expenses to
worry about. There are professional fees for attorneys and accountants.
Insurance is another large, but
necessary cost. You’ll need to have insurance that covers business interruption,
the structure and contents of the property, and general liability insurance.
You may need to get worker’s
compensation insurance if you have employees. You can get additional coverage
to cover floods and cyberattacks.
Shared
Responsibilities With Tenants
Some responsibilities can get shared
between the landlord and tenant. A perfect example is the ventilation system.
You can hire a company such as Commercial Mechanical
Services to perform regular maintenance on
the unit. You agree to share the costs with the tenant.
Another way to have a shared
agreement with a tenant is for the landlord to agree to maintenance and the
tenant to pay for repairs they caused.
Tenants usually don’t mind paying
for some of the maintenance and repair costs, but most small businesses don’t
have the cash on hand to absorb large repairs.
You can agree that the tenant pays
for repairs up to a certain amount. Anything above that amount is your
responsibility.
Run
a Profitable Business
You purchased the commercial
property because you saw the potential for income and wealth. As an investor,
you should diversify your real estate portfolio.
Commercial property investing is a
great way to do that. The lack of diversification could put your investment
portfolio at risk if the market takes a turn for the worse.
The good thing about being an owner
of commercial property is that you’ll see capital growth. This is a long-term
investment, and you’ll see the growth in value with rental income.
If you have partners or other
investors in the property, you have a responsibility to deliver a return on
investment.
You need to make sure that the
commercial investment property is profitable. That’s something that should get
assessed before buying the property.
It’s challenging to find commercial
tenants, like during the pandemic. In the meantime, you still have to pay for
maintenance, the mortgage, insurance, and taxes.
If you plan accordingly and assume
tough times will happen, you’ll be prepared to handle them and maintain
profitability.
Becomes
the Proud Owner of Commercial Property
Being a landlord isn’t easy. As the
owner of commercial property, you have a lot on your plate.
You need to set rental rates, find
tenants, pay bills, maintain the property, and more. There are things you
can share with tenants.
You’re the property owner. It’s up
to you to take care of it. This guide gave you a glimpse of owning a commercial
property. Use the tips here and you’ll have a profitable property.
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