Yet some may not completely understand the costs associated with commercial property investing.
If you are a realtor, you can help clients have successful investment goals by educating them on the costs they will face so they can budget effectively.
Budgeting Basic Costs
Regardless of what type of property an investor chooses, there are some basic costs that apply to all of them.
Following are some of the expected costs investors should include in their budget:
- Mortgage Payment - Most commercial real estate investing is done with financing. Whether or not there is a tenant, the property owner is responsible for paying the mortgage. Creative financing and taking advantage of good interest rates are the ways to reduce a mortgage payment. Since a mortgage payment will most likely be there and change very little, it is an easy item to work into an investing budget.
- Property Taxes - Although they differ based on the type of building, its location, and other property factors, clients interested in commercial property investing can usually count on the same tax fees each year. Investors should track reassessments especially when making improvements as property taxes may increase.
- Property Insurance - Even though most tenants renting a property will carry their own insurance, property owners must still purchase the right policy for their buildings. As a commercial realtor, you must stress the how important it is for building owners and commercial investors to carry proper insurance that protects the physical structure and provides important liability coverage. Types of commercial business and liability insurance and rates will differ based on the type of building being covered, what it is used for, and other specifics.
In addition to standard costs, those who choose invest in commercial real estate must budget for certain costs that can change from month-to-month, depending on the tenant and the lease agreement:
- Building Maintenance - This is generally done at the property owner’s expense and is usually budgeted into rent rates. Based on the building, climate, tenant, and other specifics, maintenance costs can differ monthly and yearly. Although maintenance costs will average out over time, careful commercial property investing means devising a feasible maintenance budget to cover expected and unexpected maintenance concerns. Owners should budget 1 to 2 percent of the cost of their buildings to comfortably cover yearly maintenance and review expenditures.
- Utility Costs - Budgeting for utility payments must be based on the type of agreement made with each tenant. As a commercial realtor, you know that landlords typically include certain costs like water, sewer, and trash collection in the monthly rental fee and make the tenant responsible for electricity, Internet, and more. The standard fees usually included in rents are predictable and easily budgeted. If the lease agreement differs and the landlord pays for electricity or other utilities, budgeting will naturally depend on being able to determine average monthly cost.
Budgeting for commercial real estate investing is not so different from other types of property budgeting.
As a commercial realtor, you should point out to commercial property investing clients what standard costs will need to be covered as well as those that could fluctuate based on specific lease agreements.
With proper budgeting, property owners can expect to profit from investment properties!