After completing the exciting process of purchasing a commercial property, there are several steps that investors should follow to ensure they maintain a high-performing asset with long-term income. While it may be tempting to kick up your feet and relax, this is the time when the work really begins!
Here are some of the key steps you should take after buying a commercial property:
1. Manage tenants
If you purchased multifamily, retail, office space, or a triple-net property, most likely either you have tenants currently in place from the previous owner or the building is vacant and you need to find new tenants. If there are tenants in place, there may be a million thoughts running through their minds, such as whether their rent will go up and if they are going to lose their home, store, restaurant, or office space.
To help manage your tenants' expectations early on, it is best to assemble a meeting shortly after purchasing the building to introduce yourself, explain the new process for paying rent, provide information on who to contact for emergency repairs, and explain any other changes they may need to know about. It is also best to put together an informational packet that they can access online and in print that details:
- New changes.
- Your contact information.
- The new property manager's contact information (if applicable).
- Any other pertinent details.
2. Find new tenants
If you purchased a vacant building (or there are several empty units in your building), it is best to hire a licensed Realtor who can assist in finding tenants and market the units. Be sure to run a credit check, confirm employment history, and review rental history before approving tenants, as that will make a significant difference in finding long-term tenants who pay on time.
3. Hire a property manager
If the previous owner who you purchased the building from did not have a property manager in place, it is strongly advised to hire someone to manage the tenants. If there is a property manager currently in place from the former owner, spend some time getting to know the person and learn more about their management process. Although there are several qualities to look for in a property manager, it's a good idea to seek the following attributes:
- Meticulously organized.
- Strong bookkeeper.
- Phenomenal people skills.
- Great personality (but can't be a pushover).
- Consistent follow-up skills.
4. Make property improvements
Research nearby commercial buildings in your asset class, and analyze their rental revenue and recent property improvements. In studying the data, you may find that it is worth making cosmetic improvements to the kitchens, bathrooms, and other areas to attract higher-paying tenants. Tenants are typically willing to pay more for units with dishwashers, washer/dryers, refurbished floors, upgraded appliances, and building amenities, such as a gym, accessible rooftop, and pool.
5. Pay operating expenses on time
If you are a first-time landlord, it may be surprising to learn about the number of operating expenses a commercial owner is responsible for paying. Ensure that all operating expenses are paid on time so you don't run the risk of losing your asset. Some common operating expenses include:
- Property insurance.
- Property taxes.
- Management fees.
- Supply costs.
- Janitorial and security costs.
- Common area maintenance.
6. Obtain permits
If you plan on remodeling your property or making any other structural changes, you will most likely need to apply for a building permit. A building permit is an official approval issued by the local government allowing you to proceed with your construction or remodeling project. A building permit is intended to ensure that the project meets the local government's standards for zoning, construction, and land use.
While the benefits of owning a commercial property are numerous, there are various factors a landlord must consider after purchasing the space. Being transparent with tenants, securing appropriate building permits, and making payments for all operating expenses on time are some of the many ways landlords can manage a lucrative asset that offers long-term wealth.
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