Should You Manage Your Own Commercial Properties?
Commercial properties are similar to cruise ships in some ways. If you have a successful, well-informed captain steering the ship to your destination, you’ll get there and have lots of fun doing it. You may even relax a little. However, if your captain takes you off course and into choppy waters, you could get seasick and end up on a deserted island. Well, the same applies to your commercial property investment: You have to make sure that your “captain” is a good one, or else your investment may receive a burial at sea.
In this article, we’ll get down to the business of discovering the essential skills of navigating and managing your property. We give you tips on how to do it a few different ways. You can do it yourself or hire and manage a property manager. We give you an inside look into the day-to-day responsibilities of a property manager. We’ll also help you discover the world of absentee owners. Knowing how to successfully manage a property from afar is a critical navigational skill to possess. It allows you to put the pieces together in owning and operating a commercial property successfully and profitably.
So, you want to manage your own commercial properties? Well, here’s a little secret about making nice profits, growing your real estate business, and making smart investment decisions: It’s not about the property. That’s right, being successful in managing your own property has little to do with the property. So, if it isn’t about the property, who or what is it really about? The answer is you! It’s about you, the investor; you, the property owner; and you, the property manager. In the following sections, we give you all that you need to know in order to successfully manage your real estate.
Your property’s success will never go beyond your own personal business development. So, go forth and spend money and time educating yourself on how to successfully manage a property and improve your overall business skills. Your future depends on it!
We’ve already spent the time and money educating ourselves regarding all things real estate, so we’re happy to provide you with some time-tested advice. When managing the property yourself, keep the following general tips in mind:
* Never be friends with your tenants. Instead, make sure your relationship is a business-friendly one. The last thing you want to do is take your friend to court for an eviction (which means that you probably won’t, and you’ll be the one to lose out).
* Know that people (not properties) cause problems. Properties don’t pay late, cause damage, or cause high vacancy. People cause these problems. So, make it a point to lease to good tenants and good companies. Having no tenant is better than having a bad one, we say.
* Get everything in writing. As manager of any real estate, words spoken are like sticks and stones — not worth very much. So, make sure that you write everything down, including rent increases, promises to pay, renewals, or improvements or repairs that the tenant has agreed to do.
* Know your market like the back of your hand. Always know what your competitors down the block are doing with their properties. Know what they’re offering to their tenants, know what sells, and know what the tenant-landlord laws are in your area.
* Have nothing in your name. Protect yourself and your personal assets from lawsuits by having your properties and businesses legally detached from you personally. First of all, the property should be in an LLC (a limited liability company) or in another type of legal entity that you and your real estate attorney and tax advisor agree on. That way if a tenant files a lawsuit, he can only go after what’s in the LLC or entity, not after your home and personal belongings. Also, don’t commingle the finances between the property and your personal expenses in any way because, in most cases, that will negate the protection an LLC or entity provides you.
The success and profitability of your commercial real estate investing business also depends a lot on your management techniques and how you implement them. Here are a few tips to help you get the ball rolling:
* Work on your people-handling skills. When managing commercial real estate, you’re responsible for managing people of many different types: your tenants, employees, contractors, vendors, government employees, and the list goes on. The key to success is patience and tact (and it doesn’t hurt to be nice either).
* Know your lease agreements inside and out before they’re signed by either side. It’s often said that when you buy a commercial property, you’re buying the lease and the building comes for free. In other words, if your lease is legally “weak,” then your investment is financially weak in the eyes of other investors, lenders, and appraisers.
* No matter how busy you get, write a business plan for the property. Remember, commercial properties are businesses. Treating them that way allows you to sleep at night because you know exactly what needs to be done and when. A good and well-thought-out business plan has a property summary, a market analysis, a sales and marketing plan, a management summary, and a financial plan.
* Know your strengths and weaknesses in managing the property. After you assess your strengths and weaknesses, be sure to build on your strengths. Take on those tasks that you do well and that give you joy. Hire out those that you don’t do well or that you don’t like to do.
* Do it right the first time. Pay for good help. The lowest bid may not be the best choice. Focus on quality, thoroughness, and attention to detail in everything you do concerning the property. After all, it’s your property (and it’s what pays the bills!).
Set a benchmark for your own personal cash flow. When you get right down to it, you’re in this business to make money, right? After setting up a budget that takes into account the income and expenses of the property, set an amount that you’ll collect as a payment for yourself as the owner and operator. Treat that amount as you would any other expense on the property.