The Essentials of Commercial Property Management

Managing a commercial property is no walk in the park. While the tenant typically covers most expenses, there's far more to it than simply collecting rent checks. 

If you're an experienced commercial investor, you likely understand that property management involves much more than sitting idly by. But if you're new to the game or considering hiring a manager for the first time, it's crucial to grasp how they can contribute to your success.

Here are the essential aspects of commercial property management you need to know.

What Does Commercial Property Management Entail?

You may be tempted to think your work ends after purchasing a commercial property, but the reality is quite different. Effective management requires handling:

  • Tenant Relations: Managing rent payments, outgoings, rental increases, lease renewals, and any lease breaches.
  • Record Keeping: Maintaining rent receipts, outgoing receipts, rates notices, regulation notices (e.g., fire checks), council permits, and updates to the Retail Leases Act.
  • Repairs and Maintenance: Organising repairs, liaising with tenants, engaging contractors, understanding maintenance costs and quotes, and familiarising yourself with the building.
  • Rental Management: Staying informed about current market rates and the Retail Leases Act, managing rent reviews and lease options, tracking rental arrears, and performing bank reconciliations.
  • Dispute Resolution: Employing dispute-resolution skills, strong communication abilities, and negotiation prowess for tenancy disputes.
  • Tenant Acquisition: Marketing, advertising, and vetting potential new tenants when vacancies arise.

Self-Managing vs. Hiring a Property Manager

Savvy commercial investors know that having a strong team is key to success. But should you self-manage or hire a professional property manager? The answer depends on several factors.

Many choose to self-manage to save on professional fees. While this may work short term, it can ultimately cost more time and money. Poor management can lead to unvetted tenants, missed payments, and property damage.

If you're time-strapped and your efforts are better directed elsewhere, a property manager may be the wiser choice.

However, if you have the time and necessary personality traits, you may manage the property better than a hired manager—since it's your personal investment, you're more likely to be invested in its success and maintenance.

Ultimately, you'll need to weigh the pros and cons of what works best for you and your situation. Being a landlord requires 24/7 commitment for your investment to thrive.

Selecting a Property Manager

If you decide to hire a property manager, remember that this person will essentially be your business partner. You need to trust that they have your best interests at heart and want you to succeed.

Choosing the right property manager is no small feat. The ideal candidate can help maximise profits, minimise expenses, and avoid costly mistakes while providing valuable insights to guide your decisions.

When evaluating potential managers, ensure they have experience with properties like yours, as different types require different approaches. Ask about their fees and services—get a comprehensive list of what's included and the associated costs.

Finally, speak with their current and past clients about their experiences and whether they would recommend the manager.

Property Manager Costs

The cost of hiring a commercial property manager varies based on your property's size, location, and required services. Generally, you can expect to pay between 3% and 7% of your monthly rental income.

Most managers use a tiered percentage approach. For example, if a tenant pays $300,000 annually, the fee may be around 2%, whereas a $30,000 annual rent may incur a 7% fee. On average, property managers charge $1,500 to $5,000 per year—a tax-deductible expense.

Key Takeaways

Commercial real estate investing is undoubtedly hard work, but it can be an extremely rewarding endeavor, both financially and personally. To succeed, however, you need the right support team in place.

A crucial consideration is whether to hire a property manager. A good one can save you time and money by handling day-to-day operations while providing valuable guidance to inform your business decisions.

Unless you're confident in your ability to fully commit to successful self-management, a skilled property manager can be an indispensable part of any thriving real estate investment team.

If you'd like to learn more about how I've helped countless investors acquire and manage commercial properties successfully, get in touch today.

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