Commercial Real Estate is one of the most profitable investments out there. However, not everyone knows how commercial real estate works. Most people think that you buy a property and then rent it out. That’s true if you want to make money off of a single-family home. But, what about multi-family buildings? What if you bought a building and rented it out to several different types of businesses? In this article, Joseph Haymore expands on some reasons why commercial properties with more tenants are the most lucrative.
Reasons Why Commercial Properties With More Tenants Are the Most Lucrative
Below Joseph Haymore has outlined a few more reasons for this phenomenon in a concise format
- Tenants tend to pay higher rents than those who live in commercial properties alone.
- Commercial properties can generate more income from leasing and renting out additional spaces (such as office space, retail outlets, or apartments).
- Tenants often spend more money than homeowners because they need to commute to work and other places. This means that businesses in commercial areas will see increased revenue from their customers.
- Commercial properties also tend to have a longer lifespan because they’re constantly being used by different businesses. This means that the rent you receive for your property is usually much higher than for residential properties.
More Income In Less Time
The first thing to understand is the value of time. Time is the biggest asset we have. If you own 1,500 square feet of commercial space across two storefronts, you could open your doors at 10am and close them after midnight. Now, let’s say that each store takes up 500 square feet, and each tenant rents $10 per foot per month (not including any additional improvements).
That means that you’re making $75/ft x 12 $900 profit today, just by owning the property! You can repeat this process indefinitely. Let’s look at some examples of how much revenue you can expect depending on the size of the property.
Let’s take a simple example. Say that I’m buying a 5,000 sq ft retail centre that costs me $400k / 5,000 sq ft $800 per square foot. We’ll assume that I need to spend $50,000 to improve the property and the interest rate is 6%. The monthly payment would be $25,000 plus taxes.
Now, let’s say that my tenant only pays $20 per square foot per month. I’d break even after 2 years, meaning I’d pay back everything I put down and still have a positive cash flow ($25,000 + 6% x 4,000 $15,600) My total return would be 5,400 – 4,200 1,200 net return. After tax, I’d have a gross return of $8,300 and a net return of $4,700.
More Tenants Means More Revenue
A commercial property with more tenants means a larger rent roll. That’s right; if you own a commercial property, you have more potential income than someone who owns just one tenant. However, having more tenants does not necessarily translate to higher profits. You need to know how much each tenant pays per month and what their lease terms are before determining whether they bring in more money for you.
The first and most obvious reason is that these properties generate more income than those with fewer tenants. This is because each tenant pays an average of $1,000 per month in rent, which adds up quickly over time. Furthermore, many commercial properties feature high foot traffic volumes which leads to higher sales figures and profits.
Moreover, in commercial real estate, the value of a property increases as lease rates increase. A property’s rent per square foot (RPSF) is directly related to its occupancy rate. When a tenant moves out, the vacancy decreases the RPSF. In addition, if a landlord receives additional income from increased rents due to higher occupancy rates, then the financial return becomes even greater.
More Tenants Means More Stability
More tenants mean more stable revenue. When you have fewer tenants, you may find yourself struggling to keep the lights on at certain times of the year. Having more tenants helps you avoid these problems.
Another reason why commercial properties with more tenants are the most lucrative is that they tend to be in better condition. This is because the landlord is able to refurbish them or replace damaged parts much faster than properties with fewer tenants. In addition, these properties are also less likely to experience vandalism or theft, which means that the landlord can charge higher rates for rental space due to their increased security.
Tenants who are more stable in their decision-making are likely to pay rent on time, stay longer than their lease terms, and have less turnover, says Joseph Haymore. Property owners should ensure that they offer security features such as 24/7 emergency maintenance services, a clear title, and strong tenant protection laws.
More Tenants Mean More Referrals
Finally, it’s important to remember that landlords who have more rental units tend to have a larger pool of potential tenants from which they can choose. This means that they’re more likely to find the right tenant for their property and attract new business expansions rapidly.
These people will tell others about your services and products, which means more exposure for your company.
Final Words
In conclusion, commercial real estate has been proven to be a great investment over the years. However, it takes some research and due diligence before making any decision about investing in commercial real estate. You need to know what works best so that you don’t waste money or time. I am certain that implementing the advice given by Joseph Haymore will help you make a profit in real estate.
