It takes a lot of time and effort — not to mention money — to get your hands on a commercial property. With that said, you can argue that it’s only once you’re installed that the real work begins. All types of property investment can benefit from having a proactive owner, but it’s especially relevant to commercial property, in which the adage you get out what you put in very much applies.
Getting started on the right footing sets your commercial property venture up for success. In this post, we’re going to outline some of the key steps to take within the first twelve months of holding the asset.
Finalize Comprehensive Insurance
Your commercial property insurance is the safety net against catastrophe. No one ever expects things to go wrong, but when they do, they have the capacity to put a serious dent in your investment.
Many new owners carry over the policy from the previous owner, but that will have been appropriate for their needs, not yours. Reviewing existing policies and making adjustments is key to making sure that you’re fully protected. It’s recommended to work with an insurance expert who specialises in commercial property insurance, rather than a general insurance agent.
Establish Your Property Management Systems
Having a strong property management system in place early on can help to prevent problems down the line. The longer you take to establish these systems, the more likely it is that you’ll spend more time than you’d like solving problems, rather than managing your assets correctly.
New commercial property owners often make the mistake of waiting for things to go wrong before they begin thinking about how things should be done. In most cases, you’ll find that hiring a property manager is the right way to go, though it’s also possible to manage it yourself with the right resources. Whatever you decide, do so early.
Conduct a Thorough Inspection
You’ll have completed an inspection of the property when carrying out your due diligence before purchase. However, while those inspections are excellent at identifying large problems, they’re not as thorough as many people expect. Minor issues often get left out due to time constraints.
That’s why most professionals recommend carrying out a more thorough inspection once you’re in ownership of the property. Doing so will allow you to make a comprehensive list of the aspects of the building that are in good shape, which are not, and which may pose problems down the line.
Ultimately, it’s a lot easier to handle an issue when it’s minor and can be repaired/replaced without disruption, rather than waiting until it experiences catastrophic failure and must be replaced immediately.
Work With Tax Professionals
Anything that helps to improve cash flow is recommended, and for that, there’s arguably no better strategy than maximizing your tax deductions. All too often, new commercial property owners take the same approach to their property tax as they do to their personal tax, not realizing that there are many strategies that can help to lower their tax burden, which in turn improves cash flow. One effective strategy is to accelerate tax deductions with cost segregation to year one instead of spreading deductions over 39 years. While you can use this strategy at any point, you’ll get the most benefit if you do so within the first twelve months.
Establish Your Maintenance Schedule
It’s easy to overlook the importance of developing and sticking to a maintenance schedule, but it can have profoundly positive long-term benefits, since it helps to avoid large-scale problems that have the potential to destroy investment value.
After all, it’s a lot cheaper to spend $500 to fix a minor problem, rather than spending $10,000 to replace the whole system two years down the line. Maintenance work isn’t glamorous, but it’s the backbone of making sure that your investment stays in tip-top condition.
It’s recommended to start building your capital expenditure reserves as soon as you have your hands on the keys. By putting away 10% of gross rents, you’ll avoid the problem that many commercial property owners experience, which is struggling to find the cash for repairs.
Start Building Your Relationships
Great commercial property management runs on relationships — with the tenants, with repair people, and with the professionals in the background who keep your business running smoothly. Focusing on nurturing these relationships, rather than seeing them as simply transactional, really can make a big difference to how well your first twelve months (and beyond) go. Ultimately, if the relationships are solid, then everyone benefits.