Commercial property offers real estate investors a number of advantages. For starters, it’s a great way to diversify your portfolio, especially if the real estate you buy leans heavily toward residential units. Commercial rental units can also earn you more in rent and set up a situation where you’re holding onto tenants for longer.
A lot of investors we work with expect commercial investments to be easy. That’s not always the case. If you’d like to think about investing in commercial properties, whether they’re warehouses, office buildings, retail space, or something more industrial – there are a few issues you’ll need to prepare for that may come as a surprise.
Your Tenants are Businesses
You’ll have to think about your tenants differently. Commercial tenants are business owners, and business owners have an interest in maintaining the property. They’re welcoming customers and employees, and they have an interest in keeping everything clean, safe, and appealing.
These tenants will also have high standards for your part of the business transaction. When there’s a maintenance or structural issue that’s outside of their control, prepare to take care of it right away. Their profitability will depend on everything running smoothly at the building. Don’t leave elevators out of service, for example.
Parking is a Priority for Commercial Rentals in Visalia
Parking takes on a new sense of urgency when you’re working with commercial clients. Depending on the types of businesses they run, there may be a huge demand for parking at your property. Prospective tenants will want parking lots or garages. They may have more employees than you have parking spots, which will create an issue.
Poor parking structures can also lead to traffic issues. Make sure your tenants understand the parking limitations that come with your building, and look for those who will work with you on avoiding traffic issues and back-ups.
Offer a Triple Net Lease Agreement
Something that’s unique to commercial rental properties, particularly office buildings and industrial or warehouse space, is that you’ll be able to offer your tenants a Triple Net Lease. Many investors find this to be preferable to a standard lease agreement.
Why? Because it provides fewer expenses for you. With a Triple Net Lease, commercial tenants pay the building’s real estate taxes, property insurance, and maintenance costs. If work is needed inside the space they’re renting from you, they’ll have to take care of it. They’ll also be required to insure the structural space and all the property inside of it.
You’ll want to motivate your commercial tenants to sign longer terms as well. Lower rent in exchange for a 10-year lease is not unheard of, for example.
Consider Your Visalia Commercial Property Occupancy Costs
Assess your occupancy costs before you invest in commercial property.
Typically, commercial real estate rates are quoted on a per-square-foot per year basis. Owners will need to calculate the total dollar amount they’ll spend when they acquire a new investment property.
Take the time to estimate the rent schedule throughout the term of the lease agreement. Operating expenses will have to be covered on your end or be shifted to your commercial tenants. Some will be expected and others will be variable.
We can help you identify great commercial investments in Visalia. If you’d like to talk through how you’ll approach this, please contact us at Equity Group. We’d be happy to assist.