Commercial property costs in the United States are increasing. As a result of soaring insurance premiums, higher labor costs, and increased repair and material costs, landlords often need to maximize rents. If they don’t, the commercial properties they purchased to generate income will start to barely hold their own.
There are many ways to maximize your rental income as a landlord beyond simply raising rent to keep up with inflation and market changes. You may want to explore some of the following options:
Improve Property Appeal and Value
If it has been some time since you gave the presentation of your property much thought, there’s no time like the present. Invest in pothole repair and parking spot painting for your parking lot, and modernize the landscaping to make your building appear more welcoming. Even fresh exterior painting and updated common areas can be a recipe for success when you’re trying to lure in new tenants and possibly charge higher rent.
Use Net Leases
If you aren’t already using net leases, don’t be afraid to explore this option to lower your everyday operating costs and increase net income. It’s a common strategy used by many commercial real estate investors that involves the tenant paying base rent plus property operating expenses, such as taxes, insurance, and maintenance. There are four key types of net leases:
- Single net lease: A tenant paying base rent and property taxes.
- Double net lease: The tenant pays base rent, along with property taxes and insurance.
- Triple net lease: A tenant paying base rent, property taxes, insurance, and maintenance costs.
- Absolute net lease: A tenant covers all costs, including significant structural repairs, like walls and the roof.
Repurpose or Subdivide Spaces
Large commercial spaces aren’t always easy to rent out. If you’re struggling to find long-term tenants for a large commercial area, divide it into smaller spaces. This has the potential to increase your overall rental income. Alternatively, turn unused space into rentable storage or parking. Think outside the box, and you may be surprised by how in-demand your commercial building can become.
Create Additional Revenue Streams
Buying real estate is already a great way to make money, but you may also be able to make additional passive income through your commercial property. Start charging for additional parking spaces or on-site storage. You could even install vending machines and earn money from what you sell in them. Some landlords get creative and lease rooftop space for telecommunications equipment, such as cell towers.
Look After Your Tenants
Among the biggest drivers of lost ROI are vacancy periods. If your tenants aren’t renewing their leases, you’re left with a space that’s not generating any income while you wait for a new tenant. That’s why looking after your tenants is so crucial for maximizing your income.
Foster positive communications that encourage tenants to renew their leases. You may even be able to charge higher per-square-foot rates by offering shorter-term leases or more flexible arrangements for modern companies and startups.
Being successful in commercial real estate as a business involves ensuring your earnings exceed your costs. The strategies above could help make your commercial space more desirable to a wide range of tenants while bolstering your bank account.
