The True Cost of Owning Commercial Property
If you own commercial property or are considering it, your goals likely include adding a major investment to your portfolio and turning a profit. Whether you are aiming for significant monthly income or see your property as a long-term asset, its important to understand all of the costs that go into owning a large building filled with tenants. Just like owning a home, some expenses are planned and upfront while others can come as a surprise and create a financial burden if you are unprepared.
Here is a broad overview of major expenses you can expect throughout a year of operating:
Property Taxes. Taxes are a part of life and will be one of your most significant planned expenses. Depending on your lease agreements, your tenants may be responsible for a portion, but they will still make up a hefty portion of your annual expenses.
Insurance. Like taxes, carrying insurance on your property is an expense you can’t escape, and you’ll be glad to have it should you need to cash in on your policy. Costs can vary greatly and depend on many factors including location, size, and what the building is used for. For example, restaurants require much higher premiums than office or retail space. Installing safety measures like fire alarms, sprinklers, and a security system can help lower your monthly premium.
Cleaning & Maintenance. Common Area Maintenance (CAM) fees are usually shared between the landlord and tenants and vary depending on the way each lease is structured. Things that are often split include landscaping, lighting, security, and utilities.
Repairs. Unlike routine cleaning and maintenance, landlords will generally be responsible for any major (and often costly!) repairs. This is the expense category that is the most troublesome because repairs often come up unexpectedly and need to be taken care of right away. If you don’t have a reserve set aside, this financial blow can threaten your profitability. Saving each month for repairs that could pop up and keeping tabs on things that may need to be replaced will give you peace of mind and help keep your earnings on track.
Property Management. Hiring a property manager can make your life much easier and alleviate a lot of the stress that comes with owning a commercial building, but you’ll need to account for their fee. We work with every client to create a customized plan that works best for your life and business goals.
Like most big purchases in life, the overall expense goes of owning a building reaches far beyond the initial cost. Once you get past the buying, design, and construction phases, you’ll need to plan accordingly for typical operating overhead, which may increase over time as the building ages. A good property manager can help you create a plan for dealing with and paying for many of these items throughout the year. If you’re feeling overwhelmed by everything that goes into owning commercial property, get in touch with us to talk about how we can take some of the management stress off your plate and make your investment more profitable and less stressful.
Please contact us if you have any questions or comments.