So you got that multifamily/industrial/retail/office/flex building! Now what? Unless you plan on occupying it yourself, you have tenants to acquire and manage! Management responsibilities will vary by property type, but we will lay out the basics here.
First, you will need to tell people about the space you have available! Residential agents use the Multiple Listing Service to market homes and sometimes commercial spaces, however the current primary commercial sites are CoStar and LoopNet. Be warned – these sites can get pricey, but they do allow you to reach a lot more commercial agents! Other sites to broadcast your space include LinkedIn, Craigslist, and good ole fashioned Facebook. Tenants won’t find you if they don’t know you’re there!
There is not a huge difference between screening an individual for a residential rental and screening a business for a professional space. The basics are still there:
Do they have the funds to pay rent?
Do they have a strong history of paying off debt in a timely manner?
What is their general character?
With a residential tenant, common requests would include 2 most recent paystubs or tax returns, proof of employment, a credit check, and references. With a business, things to ask for include business tax returns or a powerful business plan if they are new. Credit checks, applications, and checking references are also common in the screening process. A Personal Guarantee is requested often, which can provide more reassurance that rent will be paid on time.
Usually there is a Letter of Intent (LOI) from the prospective tenant that suggests lease terms such as the space they desire, lease length, rent, security deposit, rent abatement or tenant improvement requests. What is all that stuff?
In general, the shorter the lease length, the higher the rent. Since a long term lease is more desirable for a landlord, they may incentivize a longer term by discounting rent or reducing the annual rent increases.
Rent usually has an annual escalator. An escalator is an increase in rent and can be an annual increase by percentage (such as 2%) or by foot (like $0.05/ft). For example, if rent is $100/month or $1,200/year and you have a 2% escalator, the next year’s rent would be $1,224/year or $102/month for the following year.
Usually determined by landlord and agreed to by tenant. This can be equivalent to one or two month’s rent. Most of the time this cannot be used as the last month’s rent unless stated otherwise in the lease.
These are improvements to the space by the owner to suit tenant needs. This could be repair or cosmetic work.
A tenant may request a suspension of rent payments or reduced rent payments while the space is being prepared for occupancy.
Negotiating an LOI is the best time to hash out any differences and come to an agreement on terms. An LOI is nonbinding so there is low risk coming to a consensus. The next step is to have your attorney draft a lease based on the terms agreed to in the LOI. Send a draft to the tenant, and they will usually have their attorney review. Once everyone has agreed, you sign the lease and celebrate!
As the property owner, your main focus should be to maintain the integrity of your investment. If you defer maintenance you will not be able to command the same rent prices that nicer buildings can. Stay competitive and protect the future of your investment by addressing necessary repairs and maintaining the building. Keep your property from becoming a mushy avocado. No idea what I’m talking about? Catch up here.
Is Property Management for You?
Depends on the type of investment and the amount of time you want to commit to it. Constant maintenance requests and lease negotiations can take a while. If you prefer a hands-free approach, consider hiring a management company to take care of the details for you. And what a coincidence! McCann Properties actually does property management. Want to know more? Drop us a line here.
That is all the time we have for today!