What is Commercial Property Management?
An Essential Property Management Term
Commercial property management is the business of finding tenants, arranging maintenance, and facilitating leases for non-residential buildings, such as malls and offices. Commercial and residential property management share several key characteristics in terms of their business function and general processes, though there are crucial differences as well.
Residential vs. Commercial Property Management
A list of tasks designed to find tenants who will pay on time and follow the rules of a well-structured lease comprises property management. These tasks include:
- Advertising available units
- Setting tenant criteria that complies with local and federal laws
- Reviewing applications
- Screening applicants
- Committing to a lease agreement
- Collecting rent payments
- Receiving and fulfilling maintenance requests
- Communicating with tenants
Both types of property management require some level of capital to purchase properties, and commercial is far more expensive than residential. Residential properties include multifamily real estate and single-family homes; office, retail, industrial, and apartment properties are commercial real estate.
Because commercial real estate is more expensive than its residential counterpart, there are typically larger rental income streams at play for this type of property manager. Additionally, pass-through business owners can “deduct up to 20% of their net business income from their income taxes, reducing their effective income tax rate by 20%,” according to Nolo.
Speaking of income, commercial property management benefit when their tenants earn income, particularly if those efforts positively impact your property’s value. As a final perk, commercial real estate leases can pass most if not all maintenance and taxes to the tenant (called a triple-net lease).
However, commercial property management presents more difficult challenges by design, including longer vacancy prices and less economic stability. People will always need somewhere to live, but retailers have been quaking in fear since the COVID-19 pandemic once again highlighted the ever-widening disconnect between consumers and physical stores. And just as it’s true that a successful commercial tenant can positively impact your property’s value, they can lower it with poor business acumen.
Residential landlords largely forbid any retail activity within their property, so they don’t share these concerns. It’s also significantly easier to secure financing for investors looking to purchase residential property, so most landlords start with residential property management. Further, demand is consistent – as mentioned previously, people always need housing. Lastly, it’s easier to offload residential property, should the need arise. Residential property owners can sell to investors or homebuyers, widening the potential seller pool considerably.
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