Investing in commercial real estate can be highly profitable, but it comes with a lot of challenges that you need to manage. If you are someone who has experience only in the residential sector or is entirely new to this field, then you will need some tips on management.
When you want to purchase any commercial property, it is a big decision because it involves a lot of investment. How a person is managing their commercial property will determine its value. So here are some tips that will help you to manage the commercial real estate.
Jonah Engler Commercial Real Estate Management Tips
1. Personal guarantee: Any commercial real estate owner must always try to negotiate the personal guarantee of the local and regional tenant if any corporate guarantee does not back them.
Ask the business owner to provide the balance sheet to support the personal guarantee. If you see that the owner lacks assets, then the personal guarantee would be of no use.
2. Sufficient Reserve: Every investor must have enough working capital. Unlike residential real estate, with the commercial ones you can see more vacancy risk, increase in the budget for the TI allowances, repairing expenses, and higher maintenance.
The investor will have to manage all these expenses even when the building is vacant because it will help in keeping the asset in good shape so that it can be leased in future.
3. Expert’s Help: If you are someone who is failing to manage the commercial real estate, then you should hire an expert who will do it for you.
If you want to grow quickly in this sector then without any delay, you should hire a manager from any third party organization. According to https://www.forbes.com, flex spaces are in high demand in the industry of commercial real estate.
4. Active Approach: One mistake that owners make is they take the path of a passive approach, whereas they need to have a proactive approach. If you go for a passive approach, then your tenant will quickly get frustrated, and it will be hard for you to pursue a new tenant.
Always maintain excellent communication with your tenant, manage the property, change the active prospects and research about the market. This will help you to surpass all your competitors.
5. Keep Check On Maintenance And Repairs: Make sure you’re looking into any maintenance and repair. Just like any other property commercial ones will break occasionally and you need to hire someone who will help in fixing it.
Make sure you are doing a routine check on the maintenance as it will help in avoiding any major breakdown in the future. Do not spend a lot of money on preventive maintenance as it is not worth it.
6. Lease Agreement: While making any lease agreement, make sure you are opting for a legally binding contract or lease. This type of lease will have everything covered and all the possible scenarios which can happen between the tenant and the owner.
The prime motive will be to protect your property and you. While making the lease don’t just focus more on your side; otherwise, it will be hard for the tenant to agree on the same terms. Be fair with the tenants.
After finding tenants, make sure you are making the lease. You must follow all the provisions needed on the contract.
7. Technological Approach: One can use automation and artificial intelligence-based technology in their daily workflow to simplify the process of marketing, client acquisition, financial modeling, data management and valuation. If you are a real-estate syndicator, you need technology to calculate distributions, automate K1s filings, raise capital, etc. In this case, you might want to consider investing in software for real-estate syndicators that can help you automate back-office work and raise money faster.
This technological approach will help your business to stay ahead of your competitors.
8. Right Process and System: Every business sector demands proper process and the right system as these are two critical aspects. Try to accelerate the business by using technology that will help in streamlining your property and making you more efficient in the market.
9. Tax Return and Sales: Just like residential or credit score one will be able to check the tax return and sales of the commercial tenant. One must see whether the business of the tenant has any personal guarantee or assets for protection, specifically if the rent is high. So even if the company becomes bankrupt, still you will be able to get the rent.
10. Replace The Lost Renters: It is quite common to happen that the tenant’s business suddenly grows large, and there arises a scarcity of space for which they move to a new location because of tax reasons. It can also happen that the renters are facing financial difficulties, so they have decided to move to another place.
In comparison to residential space, it is challenging to find tenants for the commercial space. Anyone would love to stay in any residential area if it is comfortable, but for commercial purposes, a business has to think about a lot of factors before they make it their own space.
Jonah Engler advises people to take one step ahead and prepare the list of potential renters. So, when your renters are communicating with you about whether they want to renew the lease or not you must prepare the record of the potential new renters.
One can also talk to the renters and ask what is making them leave the place so that you can convince them by making changes. These changes can also help get new renters.
can do an online advertisement for space as it will help you to reach a wider audience. It is undeniable that it is going to take several months, but the more research you do there is a high chance that you might get some renters of the multinational companies as well if your real estate can cater to their requirement.
So these are the few tips that you need to keep in mind if you want to manage the commercial real estate effectively. It is very hectic to deal with commercial real estate because you have to monitor the condition of the space continually. So before you dive into this field, make sure you are educating yourself.