For small business owners thinking about buying commercial property, there are a number of things to consider. Many weigh out the potential risks vs rewards and budget the costs, however, they do not consider the responsibilities of owning commercial property. If you are considering buying commercial property, here are a few of the responsibilities which you want to consider.
Property Management – Property management firms will help settle tenant disputes, maintain shared areas, respond to issues with the property (think plumbing, electricity, sewage, leaks, etc.), and keep the grounds clean and nice. But these companies can be expensive, especially for a business owner who only owns one building. So if you plan to do the property management yourself, understand that this can be a fulltime job in and of itself.
Filling Vacancies – You can employ a commercial real estate agent to help you, for a fee, but it is your responsibility to keep your property full. If a lease is coming due, you need to be the one to find out if that business will renew or if they are leaving. And if they are leaving, it is on you to replace them.
Negotiate Contracts – Again, you can have a commercial real estate agent help, but it is up to you to price your units, negotiate terms, and negotiate any initial help you are giving. In some contracts, it is standard to give a buildout allowance to revamp the place. In others, the first few months will be rent-free. You need to learn what is and isn’t customary so that you aren’t asking for anything unreasonable and aren’t being taken advantage of.
Insurance – You are responsible to insure the entire building and accompanying grounds. If someone gets hurt, that is on you. If your insurance doesn’t cover it or doesn’t cover enough, you can be responsible for it. And that can put a business out of business very quickly.
Determine Business Structure – Most business owners who buy a building ultimately create a separate business to purchase the property, then pay themselves rent. This limits liability to the primary business while keeping the books clean. But that decision is yours to make, and it is your responsibility, then, to keep the finances, expenses, and bills separate for tax purposes.
These are just a few of the responsibilities associated with owning commercial property. But if you are up to the task and ready to take these on, then buying commercial real estate can be an incredible long-term investment.
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