As anyone with experience in commercial real estate will undoubtedly testify, choosing the right property in which to invest is only the beginning of your journey. The real work comes in managing the property and its tenants. As a property owner and landlord, you might feel that you have competing responsibilities: maximising the return on your investment, while at the same time ensuring that your tenants are happy with their experience.
The truth is that while on this surface these might seem to run contrary to each other, they are, in fact, complementary. The costs associated with searching for, negotiating with and securing new tenants can be extremely high in this industry. For this reason, a dollar spent on managing your property and the relationship with its occupants is an additional dollar invested towards ensuring a stable, long-term occupancy, which will save you immensely in the long-run. Furthermore, when it comes time to sell your commercial property, a stable occupancy history will be looked at very favourably by any prospective buyer and contribute to a better sale price for the owner.
With all that said, what exactly is involved in managing a commercial property? Let’s look at what you need to know to make sure your investment runs smoothly:
Your choice of tenants is crucial to the success of your investment. Your challenge here is twofold:
- Finding a tenant as quickly as possible: this typically takes significantly longer than in the residential market. It is not uncommon for properties to remain untenanted for months, or even a year or more before the right tenant is found. This can represent a significant cost to the owner in terms of resources expended in the search on the one hand, and foregone rental income on the other.
- Ensuring that you have good quality, reliable long-term occupants; once you’ve filled your vacancies, the last thing you want to do is turn around and do it all again a year or two later.
Finding great tenants requires effective marketing techniques as well as expert judgement and thorough reference checks. Any holes in your due diligence can have painful repercussions down the track.
Drafting, Negotiating and Processing Lease Documents & Disclosure Statements
Commercial real estate leases are incredibly complex, excruciatingly detailed and convoluted documents that require an enormous amount of thought, research and expert guidance to get right. Unlike residential real estate leases, which are usually straightforward and formulaic, commercial property agreements are almost always highly customised to account for both the type of property (office, industrial, retail or other) and the unique circumstances of both the owner and the tenant. It’s not surprising, then, that the drafting and negotiation process can frequently take months to complete. Patience is an absolute must, and unless you are highly experienced in this area, it would be an extraordinarily brave owner that embarked on this process without external assistance.
Once you’ve successfully secured occupancy, it’s vital to ensure that the financial side of the equation runs smoothly. There are numerous tasks involved here:
- The first task is to collect and appropriately hold bond monies in a safe and legally acceptable way.
- Collecting rent is usually a relatively simple process. However, in cases where a tenant is late, it’s essential to communicate effectively and promptly with them to ensure that the situation does not get out of hand.
- As the majority of commercial lease arrangements are GST applicable, you will need to ensure that GST is appropriately charged and remitted to the government.
- Lastly, you will need to process and bill any relevant outgoings back to your tenants. Such items may include utilities, council rates and others.
As discussed previously, maintaining positive relationships with your tenants is a vital part of long-term tenant retention. Regular rent reviews and lease renewals need to be handled appropriately and delicately to avoid disagreements or conflicts that could lead to a premature exit. By the same token, tenants have every right to expect that any queries or maintenance requests to will be dealt with promptly and efficiently. If they feel neglected, the chances of them seeking greener pastures increase exponentially. On the other side of the equation, if there are multiple owners within a single property, you will most likely need to attend regular Owners’ Corporation meetings to communicate with your fellow landlords regarding critical matters concerning the property.
If that all sounds like a massive investment of time, effort and resources, you are spot on. Make no mistake, managing a commercial property is hard, complicated work. It’s no surprise, therefore, that most smart owners look for experience and expert commercial property managers to handle this long list of tasks and requirements. MCO’s property managers have the in-depth knowledge and depth of experience to handle any form of commercial property. From finding a and vetting tenants all the way through to attending Owners’ Corporation meetings on your behalf, we’ve got you covered throughout the process so that you can have peace of mind that your investment is working for you under the most careful and accomplished stewardship. We’re committed to making your experience as a landlord as stress-free and simple as possible and leaving no stone unturned to guarantee that you enjoy the maximum return over the life of your investment. To find out how we can add value to your property, make an appointment to speak to one of our property managers today.