Posted in Commercial Real Estate

Buying Commercial Investment Property – Your Office Building Checklist

Many investors prefer commercial investment properties such as small office buildings or small retail shopping centers.  The leases are usually 3 to 5 years, tenants often renew more regularly and there are fewer headaches.  It is also common to charge commercial tenants for all repairs and their fair share of annual expense increases and this type of cost sharing is impossible with residential properties.

Depending on your location, finding a commercial investment property can be as easy as driving down a major highway.  If you don’t see many for sale signs in your area look online for a real estate agent that deals in commercial property.  In today’s market there are quite a number of properties available and if you’re ready to buy the buffet is open.

There are small office buildings with only one or two tenants and larger ones occupied by several smaller offices.  Both have the advantage of a steady income however with multiple small offices your bottom line will suffer less of an impact if a tenant moves out.  No matter which type of  commercial investment property you select, always perform your due diligence especially if the location is currently occupied.  Here is a quick checklist to help you as you evaluate an office building for purchase.

* Read all leases and make sure that you are willing to honor the terms. Long term tenants tend to get nervous about new owners and your willingness to maintain or at least negotiate terms may prevent a mass exodus when you buy.

* Review of tenant payment histories over the past two years can alert you to any possible cash flow problems.

* Examine maintenance records for the past two years to determine how well the building has been maintained.  If there are no records, reconsider the property.

* Obtain property tax notices for the last five years.  The last thing you want is to have your deal frozen due to a tax lien.

* Review insurance policies and ask for permission to obtain copies of any claims.  Verify that the property has no open litigation against it.  A slip and fall last year could end up costing you.

* Conduct a walk through of all office spaces with the owner.  Although you will still require a professional inspector, use of this visit is to evaluate the quality of tenants and see if any problems leap out at you.

While there are many additional complexities associated with commercial investment property, as compared to residential property, there are also significant profits to be made for those investors with the desire to enter the commercial real estate market.

Posted in Commercial Real Estate

Notices, Disclosures and Addendums – Part 2

Mold Notification

The subject of mold has become tremendously important in the last few years and is also one that can lead to a great amount of liability for property owners. Check with your local landlord’s association for guidance regarding notification of mold. 

In some cases, the addendums which you provide to tenants may not actually have anything to do with potentially harmful elements in the property. In some cases, you simply may need to provide notification to tenants regarding specific rules and regulations which you establish. 

One of the most common is a roommate addendum. This type of disclosure notifies tenants that each roommate is jointly liable for anything to do with their rental of the property. This prevents one roommate from skipping out and you are facing a situation where the remaining roommate claims he or she is not liable. 

A Pet Addendum

A pet addendum is another important disclosure to consider if you are going to allow tenants to have pets in your property. Generally, it is best if you always have a description of the pet which the tenant will be bringing into the property. Perhaps you based your decision on allowing the tenant to have a pet because it seemed to be a mature, calm dog. Six months later; however, you discover that the tenant no longer has the calm dog and has replaced it with a puppy that is chewing up everything in sight. Making sure that you have a description of the pet which will be allowed to be in the property is always a good idea; otherwise, you may have no recourse since you agreed to let the tenant have a ‘pet.’ There is also the matter of exercising caution regarding certain breeds of dogs on the property. If you allow a tenant to have an aggressive breed of dog on the property and someone is bitten, you could be found to be liable. 

Along those same lines, you may want to take a few extra steps to protect your property if you decide to allow tenants to have a pet. For example, increase your security deposit, just in case there are problems later on. Also, make a point to check with previous landlords while you are performing the reference check to determine whether the tenant has had a pet in the past and if so, whether there were any problems or damages. Finally, you may also wish to require tenants with pets to provide a copy of their pet’s registration papers as well as their vaccination records. 

Working with a professional and experienced broker can help guide you with your investment. If you are in need of some guidance, feel free to reach out to us.