So, you’ve purchased a commercial property but it isn’t performing the way you wanted it to. Don’t blame it on bad luck – there’s a good chance that you simply made a mistake along the way. To make sure your investment works out in your favor, avoid these six common mistakes associated with commercial property ownership:
#1 You haven’t hired a property management company
Are you running your commercial space on your own? Self-management is fine if you’ve invested in a single-family home. Commercial properties, on the other hand, are a handful, so don’t try to run them yourself in order to cut costs. If you don’t know what you’re doing, you’ll end up running your rental to the ground. This is because you won’t know how to retain tenants, comply with commercial property law, maintain your property, and more. While partnering with a property management company means spending more, you’ll actually save more money in the long run.
#2 You’ve purchased a property with only one tenant
It’s not uncommon for commercial properties to come with tenants. When window-shopping for a commercial space, be on the lookout for properties with multiple tenants. If you purchase a property with only one tenant, your cash flow will be at risk. If that one tenant goes out of business, or if they decide not to renew when their contract ends, what will you do? Most of the time, finding a replacement tenant can take a lot of time – you’ll end up not making money for months.
What’s worse is when you invest in a building that doesn’t have any tenants. Be wary when an agent shows you a commercial space without tenants as this is a sign that it isn’t doing well.
By partnering with a commercial property management company, you can make sure your property comes with tenants who’ll be in it for the long term. They know who’s who in the business, and can connect you with property owners who want to sell the properties they’ve already got up and running.
#3 You’ve rented to start-ups
Yes, you need tenants, but be careful when choosing who your tenants are. The wrong tenants can run your rental business to the ground. If you want to play it safe, don’t rent to start-ups or new companies as they put your property at risk. For one, since they’re new to the business, there’s no way to find out for sure if they can be counted upon to pay rent. Also, as sad as it sounds, they’re more likely to fail than those who’ve been in the business for a while. If possible, rent to tenants who can pay their rent consistently (despite the rent increase) and stay with you for a long time.
#4 You’ve purchased a property in the wrong location
Another common mistake that commercial property owners make is purchasing properties in the wrong location. Remember, among the many factors that can contribute to a commercial property’s rentability, location is number one. For instance, if you buy a retail center in a place that isn’t suitable for business, your property may sit empty for long periods of time.
When purchasing a shopping center or retail center, always ask yourself if people will want to visit it. If your property can’t attract people, your tenants won’t have customers, and they surely won’t want to rent in a place like that.
#5 You’ve skimped on maintenance
Whatever type of commercial property you purchase, you should always take the time to conduct maintenance. You shouldn’t be complacent, as leaving your maintenance to-dos for later can result in costly repairs. For instance, if you fail to have your shopping mall’s HVAC inspected every year, you may have to replace the entire system. Considering how big commercial buildings can be, you might find yourself cutting your budget close.
With that said, make it a habit to stay on top of property maintenance – not only will it keep your property in tip-top shape, but it can also make your property more desirable to potential tenants and their customers. It can help to partner with a commercial property management firm to go through your maintenance to-dos (the list can be incredibly long, so you’re going to need as much help as you can get!).
#6 You aren’t focusing on tenant retention
So, you’ve found yourself a tenant – now what? Do you simply let them into your property and collect rent each month? The answer is no.
In managing commercial properties (or any type of property for that matter), don’t forget to set aside time and money for tenant retention. Remember that without your tenants, you won’t be able to make money so you should never stop to win them over. As a commercial property owner, you’re going to want long-term leases, so get on your tenants’ “good side”. Make sure your property is well-maintained and address your tenant’s complaints, concerns, etc. at all times.
#7 You haven’t set a budget
One common mistake made during the budgeting process is not considering every cost involved in managing a commercial property. Many property owners consider only the maintenance costs, but what about the operating costs such as building management fees, property management fees, security, etc.?
When preparing your budget, be sure to account for all the possible costs. In addition, remember to set aside funds for rainy days (there will be a lot of them) in case you find yourself in a situation where you suddenly need money. A good example of this is when a tenant unexpectedly terminates their rental contract. Since vacancies in commercial properties tend to run longer than in residential properties, it’s best to be prepared.
If you aren’t familiar with the costs associated with commercial properties, a South Florida property management firm can help.
Commercial properties can be challenging to manage, but by following these tips, they can be rewarding. If you’re searching for a commercial property management firm in South Florida, get in touch with Luxury Property Care’s experts today. With us by your side, you can avoid the risks that come with owning a commercial property and make sure it works out in your favor.