13 Things Every New Commercial Landlord Should Know
Category Newsletter: Latest News
The most lucrative commercial property investments in a sluggish economy are those that deliver both short- and long-term returns, but knowing what makes a good investment and understanding how to make that investment work for you, are two very different beasts.
That's according to High Street Auctions Director Greg Dart, who says with monthly rentals that can run into millions of rands, potential earnings from correctly managed commercial real estate investments can be significant. But transitioning from owner to landlord requires a shift in mindset and a healthy dose of knowledge.
"Being a successful commercial landlord is more than just collecting rent.
"The same principles apply across commercial sectors from warehouse facilities to community shopping centres. If you don't get the fundamentals right, you'll probably end up losing a lot more money than you might make from any rental income."
Dart says for aspiring landlords, knowledge is king. He has a list of essential tips to set new commercial landlords on the road to profitable, problem-free property management:
1. Know Your Market: It's not just about location, location, location anymore. Understand the specific needs and trends within your property's sector (retail, office, industrial, etc.) Analyse competitor offerings, rental rates, and vacancy trends to set yourself apart - then stay market savvy! Market fluctuations are inevitable. Regularly research your local market to stay informed about changing trends and vacancy rates, which will help you adjust your pricing strategy and maintain competitiveness.
2. Master the Lease Agreement: This intricate document defines your relationship with tenants. Hire a lawyer specialising in commercial leases to ensure you're covered on rent terms, maintenance responsibilities, sub-letting clauses, and termination procedures. A watertight lease agreement is your shield and sword. It should clearly detail every aspect of both parties' responsibilities, legal obligations and occupancy periods, as well as contingencies should either party default.
Why does a landlord need a watertight lease agreement?
Abrahams & Gross's Litigation and Dispute Resolution attorney, Henno Bothma, says having a proper lease agreement is essential for landlords for several reasons. Firstly, it helps to establish a clear understanding between the landlord and the tenant about their respective rights and obligations. This can help to prevent misunderstandings or disputes that may arise during the tenancy.
Secondly, a lease agreement can protect the landlord's property by setting out guidelines for maintenance and repairs. This can help to ensure that the property is maintained in good condition and that any damages caused by the tenant are addressed promptly.
Thirdly, a lease agreement can provide a framework for resolving disputes that may arise during the tenancy. This can help to minimise the risk of costly and time-consuming legal proceedings.
Fourthly, a lease agreement can help to protect the landlord's financial interests by specifying the terms of rent payments, late fees, and security deposits. This can help to ensure that the landlord receives the rent on time and is adequately compensated for any damages or unpaid rent.
A sound lease agreement is essential
In summary, a well-drafted lease agreement is essential for landlords to protect themselves and their property. It provides a clear understanding of the terms and conditions of the arrangement, establishes guidelines for maintenance and repairs, provides a framework for resolving disputes, and protects the landlord's financial interests.
Speak to a legal expert
As a landlord, it is important to seek the advice of a legal professional to ensure that your lease agreement complies with all relevant laws and regulations, and is tailored to your specific circumstances.
3. Know the Legal Stuff: Ignorance is not bliss, especially when it comes to landlord-tenant laws. Familiarise yourself with local ordinances and national regulations to avoid costly legal headaches down the line. Invest in legal counsel to stay updated on legislative changes. Understanding your rights and responsibilities avoids costly legal disputes.
4. Tenant Triage: Your tenants are the lifeblood of your investment. Develop a thorough screening process that includes credit checks, reference verification, and income verification. Remember, reliable tenants are worth their weight in gold (and rent!) Also don't be blinded by the first offer. Meticulously screen potential tenants and choose those who are both financially stable and align with your property's image and long-term vision.
5. Maintenance Marvel: Remember, unless you have signed a triple nett lease, you're responsible for keeping every part of the property in tip-top shape. Establish a proactive maintenance plan, budget for repairs and replacements, and respond promptly to tenant requests. A well-maintained property attracts and retains quality tenants, but ensure that tenants also clearly understand their maintenance responsibilities. Keep a top-notch black book and relationships with reliable, reasonably-priced trade professionals from plumbers to electricians to handymen. Regular property upkeep is crucial for tenant satisfaction and maintaining your investment's value.
6. Be the Communication Champion: Open communication is key to building strong tenant relationships. Establish clear communication channels, respond promptly to inquiries, and be available to address concerns. Building trust fosters long-term tenant loyalty and reduces vacancies.
7. Expect the Unexpected: Emergencies happen. Be prepared for unforeseen circumstances like natural disasters, tenant defaults, or equipment malfunctions. Having a contingency plan and emergency fund will help you weather the storms and minimise disruptions.
8. Embrace Technology: Modern property management software streamlines tasks, automates rent collection, facilitates communication, and offers valuable data insights. Smart technology simplifies workloads and gains a competitive edge.
9. Network, Network, Network: Build relationships with other commercial landlords, industry professionals, and tenant brokers. Networking opens doors to valuable knowledge, potential tenants, and collaboration opportunities.
10. The Numbers Game: Understand the financial side of things. Calculate operating expenses, project income, and factor in vacancy rates to ensure your investment generates sustainable returns. An accountant is a must.
11. Be Adaptable: The commercial real estate landscape is constantly evolving. Stay informed about industry trends, adapt your strategies accordingly, and be prepared to make investments and adjustments to maintain your property's competitiveness and profitability.
12. Be a Responsible Steward: Remember, you're not just managing a property, you're contributing to the community. Be mindful of your environmental impact, support local businesses, and strive to create a positive and sustainable space for your tenants and the surrounding community.
13. Ask the Professionals: The all-in-one solution for novice landlords who want to learn to do everything right, is to initially appoint an experienced property management company. That way, as a new landlord working alongside your managing agent, you'll make fewer rookie mistakes getting to grips with the big picture and the day-to-day details that create the physical and administrative environments which collectively produce the most appealing rental proposition to attract and retain gold-standard tenants. Once you fully understand all the aspects of the business you can choose to take back the reins, but the most successful landlords are invariably those who surround themselves with trusted professionals, and believe in delegation.
"After the purchase, though, the real hard work starts. It takes dedication, knowledge and commitment to provide a quality experience for tenants.
"The mistake many novice landlords make is thinking that they have to be instant experts in every aspect of property management from legislation to snaking drains. It's laudable but wrong, and it's led to many investors losing their shirts.
"As a new landlord your goal is to learn all the components of your business by building strong relationships, surrounding yourself with experienced professionals, continually expanding your knowledge base and using your existing property expertise along with input from your skilled advisors to make the best strategic decisions for the growth of your investment.
"That, ultimately, is the winning recipe to navigate the complex but exciting and lucrative world of commercial real estate; to earn significant passive income from a thriving rental property for years to come while you wait to cash out big returns from the long-term value escalation of your investment."
Author: Property24
