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Commercial vs Residential Property Management: What the Difference is?

Commercial vs Residential Property Management: What the Difference is?

by Author Donatas Kazakauskas 

There are many differences between commercial and residential property management.

Usually, new property managers start with residential buildings, because of its simplicity. But if one wants to jump into commercial property management, there are many things to learn. In this blog, I will cover the key points.

sfpma1. Tenant expenses. In addition to the base rental fee, commercial building tenants need to pay some or all of the expenses related to real-estate ownership. These expenses (can be called “three nets” or NNN) consist of property taxes, insurance and maintenance fees. There are several types of commercial leases, such as:

a. Triple net – requires the tenant to pay the net amount for all three types of costs (real estate taxes, building insurance and common area maintenance (CAM) fees).

b. Modified net – a compromise between gross lease and triple net. The property manager and tenant usually agree to split the maintenance expenses, but the tenant pays for the real estate taxes and insurance.

c. Gross lease – In this case, the landlord collects the fixed rental fees and pays for all the expenses out of them. These contracts usually have many clauses that may increase the rental fee to cover increased taxes or insurance for the landlord.

d. Percentage lease – mostly used in shopping centres and retail malls. It typically requires a lessee to pay the base rent and on top of that amount, pay a percentage of their sales volume.

These leases are much more complex compared to residential leases. In cases where you collect a fixed amount for CAM fees every month, you need to do an annual recalculation based on what you have received vs actual expenses. Residential rental rates are typically a fixed amount per month or other price period plus the utilities payed based on consumption. Does your software allow you to deal with all calculation situations and easily calculate the correct amounts for the tenants? Soft4RealEstate does.

2. On-Site manager and maintenance. In large office centres or shopping malls, it is necessary to have on-site managers who can deal with tenant requests or take care of other issues. In some countries or US states, this is even defined by law. To track all the requests and work orders, you need to have a system that is easy to use for both the manager and tenant. It should be easy for the manager to track all ongoing tasks, view the work schedule, and change statuses. On the tenant’s side, it should be clear when and what will be done, and when any work can be expected to be finished. While renting apartments, you can have maintenance vendors and tenants usually deal directly with them without property manager interruption.

3. Responsibilities. This point is an advantage for commercial properties. Tenants of commercial buildings have a greater amount of responsibilities than residential tenants. With residential tenants, you’re agreeing to a habitable residence, and the laws weigh most heavily on the tenant when it comes to evictions, habitability, etc. Commercial properties are for business use, and the scope of landlord responsibilities is lower. What is more, most commercial buildings are only used during the daytime, so you won’t receive midnight calls for fixing a toilet, leaking pipes or complaints about loud music from neighbours.

4. Leases. It is easier to rent residential property. Moreover, the rental agreements are usually shorter in length and easily renewable, while commercial leases are more complicated. They are much longer, might have difficult extension options, rent is reviewed annually and prices are commonly increased by the CPI or some other fixed index. Commercial lease agreements are harder to break because of many termination clauses.

Even though the processes seem similar: you have tenants, you have contracts, and you have units to lease, maintain and manage, so commercial property management and residential property management are not the same. You need to take all the things mentioned above into consideration in order ensure the best results for every situation. Not every residential property manager can manage commercial properties without any preparation. Once you start doing commercial property management, make sure that you not only have the necessary knowledge, but also the tools, such as software, to make it work. Sometimes Excel seems good enough to do the work, but the day may come when you need to say goodbye to it. When?

 

 

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Tasks property managers commonly perform for owners

Tasks property managers commonly perform for owners

Evaluate the property and determine an accurate rental rate

  • Perform detailed documentation of the interior and exterior including photos
  • Offer recommendations on repairs and cosmetic improvements that maximize monthly rent while providing good ROI.
  • Gather data on rental rates in the area and work with owners to determine the optimal rental rate. Rent research will vary, but should include looking at the recently rented comparables according to size and type.
  • Discuss with owners the pros and cons of different policies such as accepting pets, allowing smoking etc.
  • Install a lock box

Market the property for rent

  • Prepare home for rent
    •  Clean home and optimize interior appeal
  • Create ads tailored to the property and advertising medium. Some of the mediums commonly used are:
    • Paid and free rental listing websites
    • Print publications
    • Signs
    • MLS
    • Fliers
  • Work with other realtors and leasing agents to find a tenant
  • Provide a 24-hour hot-line where prospective tenants can listen to detailed information about the property
  • Field calls from prospects for questions and viewings
  • Meet prospective tenants for showings throughout the week and weekend.
  • Provide prospective tenants with rental applications that are legally compliant with fair housing laws
  • Collection applications with application fee

Tenant Screening and Selection

  • Perform a background check to verify identity, income, credit history, rental history, etc.
  • Grade tenant according to pre-defined tenant criteria
  • Inform tenants who were turned down

Tenant Move In

  • Draw up leasing agreement
  • Confirm move in date with tenant
  • Review lease guidelines with tenant regarding things like rental payment terms and required property maintenance
  • Ensure all agreements have been properly executed
  • Perform detailed move in inspection with tenant and have tenants sign a report verifying the condition of the property prior to move-in.
  • Collect first months rent and security deposit

Rent collection

  • Receiving rent
  • Hunting down late payments
  • Sending out pay or quit notices
  • Enforcing late fees

Evictions (A Great website for Eviction Information is: www.NationalEvictions.com )

  • Filing relevant paperwork to initiate and complete an unlawful detainer action
  • Representing owner in court
  • Coordinating with law enforcement to remove tenant and tenants possessions from unit

Legal

  • Advise in the event of a legal dispute or litigation
  • Refer owner to a qualified attorney when necessary
  • Understand and abide by the latest local, state and federal legislation that apply to renting and maintaining rental properties.

Inspections

  • Perform periodic inspections (Inside and outside) on a predefined schedule looking for repair needs, safety hazards, code violations, lease violations, etc.
  • Send owner periodic reports on the condition of the property

Financial

  • Provide accounting property management services
  • Make payments on behalf of owner (Mortgage, insurance, HOA dues, etc.)
  • Detailed documentation of expenses via invoices and receipts
  • Maintain all historical records (paid invoices, leases, inspection reports, warranties, etc.)
  • Provide annual reporting, structured for tax purposes as well as required tax documents including a 1099 form
  • Advise owner on relevant tax deductions related to their rental property
  • Provide easy to read monthly cash-flow statements which offer a detailed breakdown of income and itemized expenses

Maintenance, Repairs, and Remodeling

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  • Provide and oversee an in-house maintenance crew
  • Establish a preventative maintenance policy to identify and deal with repair needs
  • Provide an network of licensed, bonded and fully insured contractors who have been vetted for good pricing and good work that is up to code.
  • Assign jobs to different parties (in-house employees, handyman and professional contractors) based on who will do the best job for the best price.
  • Maintain outdoor areas
    • Leaf and snow removal
    • Landscaping
    • Removing trash and debris
  • Maintain and monitor a 24 hour emergency repair hot-line
  • Larger renovation or rehab projects
    • Provide recommendations on how the project can maximize rental income.
    • Prepare preliminary cost estimates
    • Get multiple independent bids for the work
    • Act as general contractor overseeing the work

Tenant Move Out

  • Inspect unit and fill out a report on the property’s condition when the client moves out
  • Provide tenant with a copy as well as estimated damages
  • Return the balance of the security deposit to the tenant
  • Forward any portion of the owner’s portion of the tenant deposit to the owner or hold in owner reserves for repairs.
  • Clean unit and perform and needed repairs or upgrades
  • Re-key the locks
  • Put the property back on the market for rent

This isn’t intended to be a comprehensive list of property management services, but it should give you a fair idea of the scope of a property management company’s activities

SFPMA Members work with HOA, Condo, Multi-Family, Single-Family, when you are ready to have your property Managed by a Professional and take the time to enjoy your life.

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If you don’t hire someone to field these inquiries, you’ll have to do it yourself.

If you don’t hire someone to field these inquiries, you’ll have to do it yourself.

Vacation Management managers can be found on SFPMA.com

Vacation listing websites help you book renters but they can take up to 30 percent in commissions. While this may seem high, remember that each booking can involve dozens of inquiries for each renter. If you don’t hire someone to field these inquiries, you’ll have to do it yourself.

You probably don’t want to rely on a listing website alone for your marketing. If you do, you may be costing yourself a lot of rented nights each year. Here are some relevant facts from the Vacation Rental Property Marketing Blog about vacation rental owners’ marketing expenses:

Vacation rental owners spent an average of $1,150 per year marketing their properties in 2011.

Half of all vacation rental owners only use listing sites to market their properties. This group experiences annual average occupancy rates of 54 percent.
Vacation rental owners who combine listing sites with their own websites bump their occupancy rates up to 76 percent, on average.
94 percent of all vacation rental owners believe they could be doing more to promote their properties.

Let us help by listing your Vacation Rental Company with us: 

SFPMA has a Directory used by Thousands of Clients looking for the management services you provide.

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