Now that you are making a deal to acquire a commercial property and so are waiting to close escrow, you might like to start looking for a property manager to professionally manage the property. Your real estate investment advisor should give you 2 or 3 local companies, each using its own proposal. Your task would be to choose which company you are going to hire. The home manager could be the main point of contact between you, because the landlord, along with the tenants. Her main job is to:
Receive and collect the rents and also other payments from your tenants. This is typically simple until a tenant fails to send the rent check. An excellent property manager will somehow have the tenant to cover the rent while a lousy you will throw a monkey lying on your back!
Hire, pay, and supervise personnel to preserve, repair and operate the property, e.g. trash removal, window cleaning, and landscaping. Otherwise, your property loses its appeal, and customers might not exactly patronize your tenants’ businesses. The tenants then might not exactly renew their lease. As a consequence, you might not realize the expected cash flow.
Lease any vacant space.
Keep a precise record of revenue and expenses, and give you a monthly report.
An effective property manager is critical in order to keep your property fully occupied on the highest market rent, the tenants happy and in turn allows you to achieve your investment objectives. Prior to selecting residential property management, you might want to:
Interview the organization with give attention to the way the company handles and resolves problems, e.g. late payment.
Talk with the individual who will manage your property daily as this may be a different person from the one that signs the property management contract. You need someone with strong interpersonal skills to effectively cope with tenants.
The property managing company normally wants a binding agreement for at least one year. The contract should spell the duties of the property manager, compensation, and what will require the landlord’s approval.
Agent’s Compensation: you should pay a person to manage and lease the home. You could have one company to control your property plus a different company to lease the property. However, it’s best to work alongside one company that handles both managing and leasing to save time and cash.
Management fee: the fee varies between 3-6% in the base monthly rent to get a retail center, according to the work load needed to manage the property. By way of example, it takes much less time for you to manage a $2M retail center with only just one tenant compared to a $2M retail strip with 12 tenants. So, to the center with 12 tenants, you might want to pay a better percentage to motivate the home manager. You must negotiate the charge like a percentage of the base rent instead of the gross rent. Base rent will not include NNN charges. Ideally, you want a lease when the tenants buy their share of property management fee.
Late fee: each time a tenant pays late, he is often necessary for the lease to cover late fee. Your property manager is allowed to keep this fee being an incentive to gather the rent.
Leasing fee: this fee compensates the property manager to lease any vacant space. Inside a typical lease contract, the leasing company wants 4-7% from the gross rent on the life of the lease. In addition, it wants the leasing fee being paid once the new tenant moves in. Moreover, the leasing company wants around 2% of gross rent if the lease is renewed. The tenant may also require Tenant Improvement (TI) credit, typically between $10-20 per square foot to fund construction expenses. In case a new tenant having a 10-year lease goes under after 12 months then you might generate losses. As being the landlord you need to:
Approve a long term lease (ten years or longer) only once the tenant’s financial strength is solid. Otherwise, it can be better to decrease the lease to 3-five-years.
Ensure the new lease includes a provision for some kind of rent escalation, preferably depending on Consumer Price Index (CPI), i.e. inflation which is 3-4% per year rather than lower fixed 1-2% annual increase.
Consider TI request through the tenant as among the factors to approve a lease. The TI credit is dependent upon whether you will need the tenant more or the tenant needs you more.
Negotiate to get a flat rate renewal fee, e.g. $500 rather than paying a share from the rent for the lifetime of the lease. The negotiation is much easier with one company that handles both leasing and management.
Negotiate to pay the leasing agent a reduced percentage, e.g. 4% when no outside leasing broker is involved.
You will notice that it’s very important to lower tenants’ turnover rate as it has a direct influence on the cash flow of your respective commercial property. An excellent property manager will allow you to pr0perty this goal.
Monthly Report: on a monthly basis the property manager should give you a report on income received, expenses incurred, and property status. You must Evaluate the report to determine if the numbers make sense. You should:
Request a report showing both rent and CAM fees received.
Request another checking account to your property and also have a monthly bank statement sent to you. Without this, your property manager will deposit and commingle all of the rents from all properties she manages into her company’s banking account.
In the event you instruct the home manager to deliver you the excess cashflow then furthermore you will obtain a check.
Landlord’s Approval: the rental properties should specify the dollar limit for exceptional maintenance expense above which may require your approval. This amount differs from landlord to landlord plus the kind of property. However, it’s typically approximately $500 to $2,000 dollars.
Communication with property manager: in the initial few months, you and also the brand new property manager should communicate often to be certain things go smoothly. You should give instructions in creating, e.g. email, to the property manager whilst keeping records of your correspondence. In the event the property manager is not going to do the things you instructed, you could possibly refer to your records and reduce disputes.
If you want to work hard for your money, you might want to manage your very own property. However, in order to work smart, your companion needs to be a good property manager.