Real estate investors need to be highly selective about their acquisition of a property. They must assign the same level of scrutiny to the manner in which they choose to lease it and manage it. Over the course of their ownership of a commercial parcel, strong attention to managerial practices and close attention to a leasing venture’s financial health will help to foster good returns.  

Tenant Selection

Commercial landlords need to be savvy about choosing tenants. Typically, a commercial lease is longer in duration than a residential lease. Since finding the right tenant can be difficult, any unnecessary turnover and vacancy can result in months of lost potential revenue. A good screening process can help assure that landlords will choose renters who can meet their ongoing financial obligations apart from just the monthly rents. If a business model fails, a tenancy will fail. In order to be a good candidate to rent commercial real estate, a business should have good credit history, a healthy and consistent stream of revenue, and a competent management team.

Risk Management

Commercial real estate owners may need more than one type of insurance policy in order to fully offset the risk exposure involved with owning and managing a building that is zoned for commercial use. In addition to property insurance that can address damage to the premises, a general liability policy can protect owners and their financial partners from claims initiated by third parties. Having this type of coverage to prove to be a very important asset because many of the most common types of claims against commercial property owners such as premises liability actions are likely to be settled by a carrier rather than proceed to trial. For the most part, it is preferable for commercial real estate owners to settle any legal claims against them as soon as reasonably possible. Having a claim pending could potentially impact an owner’s ability to refinance or sell the property. In addition, pending claims could have an adverse effect on insurance premiums at the time of renewal.

Ultimately, it is important to bear in mind that an investment in commercial properties requires a willingness to invest considerable capital without much liquidity. Minimizing overhead costs and exercising smart financial planning techniques can enable investors to maximize returns from a commercial property. Of course, extensive due diligence in the process of researching properties can help assure that investors will be able to generate the revenue that they had forecasted.