Each commercial property is a specific business. Chances are, when you purchase a property, you immediately put the property into some type of entity like an LLC just like a business. You have sales, marketing, employees (property managers, landscapers, etc.), cost of goods and expenses, just like a well-run business. Yet many property owners don’t treat their investments like a business, often neglecting certain aspects of the property which in turn reduces the overall return on investment. Once a goals-based investment strategy has been identified, it’s important to put a property business plan in place to ensure your business is like a well-oiled machine.
Sales and marketing – When you own a cashflowing property, you are selling space for businesses to occupy and thrive. Having a sound sales and marketing strategy ensures less downtime with tenant turnover and contracted rents closer to market rates. You want to identify commercial brokers (or property managers with apartments) that have good track records, extensive market knowledge, and a well thought out marketing strategy that coincides with your goals.
Employees – In this case, your “employees” are really contract workers such as landscapers, property managers, HVAC technicians, and general contractors, to name a few. Generally these aren’t really employees unless you have a very large property that can support those expenses, however, they still need to be treated fairly and given clear instructions on how things are to be run. Effective communication and clear expectations are the goals here and their actions should align with your operational values.
Cost of goods – Once again, cost of goods doesn’t apply in the strict sense in that we have products to purchase or manufacture for resale; however our “product” is our building and needs constant upkeep. In this sense, cost of goods can be translated to capital improvements that can improve the property’s efficiencies, repair deferred maintenance issues, or overcome obsolescence issues. Ensure you have a sound budget and timeline for these expenses so that your cashflows don’t suffer.
Expenses – Commercial real estate expenses are a long laundry list of items that must be paid on a regularly recurring basis, such as utilities, property taxes, property management, regular maintenance, marketing costs, and much more. As before, a sound budget goes a long way. One question to ask is, are there improvements that can be made to reduce or eliminate expenses without compromising the quality and integrity of the building? For example, updating to low energy HVAC systems, installing energy efficient lighting, or planting drought tolerant landscaping. They can seem like small details, but can add up over the years and in some cases increase the value of the property.
Investors are the CEO’s of little businesses that help improve commerce and provide housing. Take the time to put together a business plan that outlines goals and expectations, improvements and budgets that will help run your property more efficiently and create great long term value. If you’re unsure where to start, feel free to reach out to us!