How do you maximize the value of your San Francisco Bay Area commercial property?
Owning commercial property is one of the best long-term investments one can make. It has distinct advantages over other investments. For example, a property investment is not nearly as volatile as a stock investment. The returns are usually attractive and are stable, similar to that of a bond investment. Investing in property has one distinct advantage over a bond however, and that is that it can to some degree protect you from inflation. Having said that, property does require it to be maintained properly and that requires a time commitment as well as expertise. This article lists a couple potential pitfalls and tips on how to avoid them. Before we go into the detail, we split investors into two groups; Commercial investors that occupy their own building, and the investor who leases it to tenants.
Maintaining Owner occupied properties
There are plenty of reasons for a company to own the building it works in. As our example, we will use a company that produces special widgets – but it just as easily could be a doctor’s office, car dealership, pre-school, lawyer’s office other enterprise.
Our widget producing company could not find suitable space in an area that is close to their clients, and they also wanted the freedom to design and decorate without objections or limitations from a landlord. Other commonly heard reasons to own the building is that it was part of the acquisition of the company, or the purchase was motivated to save money on what otherwise would have been a costly lease.
Pitfall number one is the company does not fully recognize or appreciate that its financial future is not only tied to producing and selling widgets but also to commercial property.
When a building is neglected it will ultimately look like this
Maintaining the building is a necessity, and by spending a moderate amount each year, you avoid more costly repairs over the long term.
Pitfall number two is that maintaining a building requires expertise that is dissimilar from widget production. Being really smart in the widget department does not necessarily make you an expert at plumbing, electric or knowing (or wanting to know) how to keep rodents out. Even if you have the knowledge, some of these activities require proper licenses and insurance.
Pitfall number three – keeping the property clean. Yes, something as mundane as cleaning is very important. Not often will someone go out of their way to shower you with praise on the cleanliness of the building, but oh boy, if it’s dirty, you better learn to live with the complaints. Employees AND clients will become disenfranchised with a dirty building which will lead the situation to get worse, because employees are less likely to take care of tidying up after themselves, and clients are less likely to do business with you, leading to lower profits. Investing in a reputable maid or janitorial service ensures that your clean building reflects the quality of your brand.
Maintaining Third party occupied properties
Ownership of one property – let alone multiple – involves time and effort. Depending on the size and location it can be close to impossible for one person to handle it alone. In some cases, it completely consumes your life, and that is an unpleasant thought, especially if you are the type of investor that was hoping to spend time on perfecting your golf game. What are some of the common pitfalls that threaten the value of your commercial property?
Pitfall number 1 – pushing responsibility for upkeep of the building to the tenant. As a property investor, you probably will not want to spend time and effort on managing multiple vendors to cover the various aspects of building maintenance. What simpler way to deal with that than to tell your tenant to take care of it? Tenants come in all flavors, good and bad and let’s face it, even the good ones are not going to care about your building as much as you. If you decide to go this route, make sure to specify the terms and conditions, like requiring them to go with a licensed and insured vendor that you have pre-selected. Do not let them skimp out and go with a fly by night unlicensed electrician.
Pitfall number 2 – keeping your tenants satisfied. Having paying tenants is what provides you a sustainable return on your commercial property investment. A property with high tenant turnover is time consuming and costly, and can invariably lead to vacancy and loss of rental income. In certain circumstances the loss of a key tenant can cause the downturn of your property.
Pitfall number 3 – failing to keep the building safe. Keeping a building safe involves some obvious things like having proper locks and installing a sprinkler system. It also includes things that are often overlooked, like removing tripping hazards or making sure the parking lot is salted on icy cold winter days. There are a host of things that you must do to keep a building safe, and a third-party facility services company can help create, implement and manage a maintenance plan.
In summary, a commercial property can be an excellent long-term investment, but in order for your investment to grow, you have to maintain it. A facility services management company like System4 of San Francisco East Bay can help by providing a facility maintenance plan as well as managing some, or all services required to ensure stress free growth of the property investment.