3 MIN. READ
Buying your first commercial property is often as exciting as buying your first car. There is a feeling of euphoria. You’ve made it. You’re a commercial landlord. Now it’s time to turn that property into the investment of your dreams.
What to do after buying commercial real estate? To ensure success, start by meeting the current tenants, evaluating the existing vendor network and creating repair and capital improvement plans that enhance valuation over the long term.
Meeting the tenants
After buying a new property, make it a priority to introduce yourself to the existing tenants. Doubtless, the existing tenants played a large role in your decision to purchase the property. Afterall, the ever important NOI calculation that drove your decision to invest in the property depends in part on their continued occupancy.
Meeting the tenants provides a chance to put them at ease about the change in ownership. Also, it provides tenants an opportunity to express any concerns. Tenant meetings can be great fact-finding missions, allowing for a deeper understanding of each tenant’s position.
Ultimately, you will have to negotiate lease renewals, and information discovered in these meetings enhances your chances of writing productive release renewal agreements.
Establish short- and medium-term asset plans
Investment success and long-range planning go hand-in-hand. New commercial property owners must consider both capital improvements and repairs. The IRS defines capital improvements as enhancements to the property that increase its value, while repairs restore a part of the property to its former working condition. As the IRS treats capital improvements and repairs differently, it’s important to plan each aspect of your spending for the highest tax advantage.
A capital improvement plan (CIP) is a must. A well-thought-out CIP systematically evaluates all potential projects at one time. It prioritizes them, establishes time frames and allows for the stabilization of debt and the consolidation of projects to reduce borrowing costs.
The CIP creates a roadmap to property value
A CIP can cover a few years or up to a decade, depending on how long you plan to hold the property. It should provide a clear vision of how capital improvements will enhance property value.
Important facets of the plan include projects ranked by priority, financing plans, timetables for project completions, the financial justification for improvements and a detailed explanation of expected expenses.
Contact all vendors
Maintenance, repairs and operations (MRO) spend is a reality of commercial real estate investment. Some MRO spend can be included in your long-range planning.
Other aspects, such as emergency repairs, must be planned for even though there is no way of knowing exactly when they will strike. Handling repairs and other operations effectively and economically depends in part on having a solid vendor network.
Meeting the vendors allows you to evaluate if the current network meets all the property’s needs. It also provides a chance to judge if MRO spending can be reduced without hurting the value of your investment.
In addition, your CIP plan may illustrate the need for new types of vendors. Finding out each vendor’s capabilities allows you to judge if you need to shop for additional contractors.
Now that you’re a commercial landlord, the sky’s the limit. Turning your first property into a success builds your credibility in the industry. As your reputation as a commercial investor of weight grows, opportunities for bigger and more profitable properties and increased leverage come your way.
By establishing good tenant relations, building solid vendor networks and enacting a productive CIP plan, you are on your way to commercial real estate stardom.
How to get a new CRE investment off the ground
What to do after buying commercial real estate? Getting your new investment off the ground takes some planning. First, meet the tenants and vendors and find out all you can. Then, use that information to create a plan to enhance your investment’s value.
What to do after buying commercial real estate