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Four Tips for Converting Residential Properties into Commercial Properties

by | 29 November, 2022

Four Tips for Converting Residential Properties into Commercial Properties OG1
You’ve been thinking about it for a while and you’re finally ready to take the leap from residential to commercial real estate. It’s a big move, but if done correctly it can be an extremely lucrative investment. In our latest post, we’ll share with you some of the best ways to make this transition so smooth that you hit the ground running!

Commercial real estate can yield high profits with the right renters in place. Returns tend to be higher than normal and maintenance is low. Although an investor with a background in residential properties will likely be able to handle the process, there are some tips we think you should know before buying commercial real estate.

Understand Your Costs

There are a few key financial differences to keep in mind when considering a commercial property investment, as the associated expenses can be quite different from those for single-family residences.

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Insurance costs

When determining the budget for a commercial property, be sure to include insurance costs in your calculations. The premium for coverage on the building could be as low as $500 annually, or quite high, up to several thousand dollars! Get quotes from different providers so that you’re not surprised later by hidden fees. Insurance is an important detail that shouldn’t be glossed over—having a solid policy will protect you financially in the long run if something goes wrong.
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Turnover

Tenant turnover is expensive! You’ll have to cough up for ads, tenant screening, and potentially hire an agent. Make sure to do background and credit checks so you know your tenant can actually afford the rent every month. There are many affordable services that can run these reports on your behalf, so no excuses!
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Repairs

The repairs you’ll need to make will be based on the size of your commercial building. Larger buildings often require more expensive repairs, such as air conditioner repair and painting. However, if you own a single commercial building with multiple tenants, you can stagger some of the repairs so that everyone isn’t affected all at once. For example, repairing or replacing the roof will help all parties involved since it’s a shared space. Reroofing 10 houses would cost significantly more money.
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Repairs

The repairs you’ll need to make will be based on the size of your commercial building. Larger buildings often require more expensive repairs, such as air conditioner repair and painting. However, if you own a single commercial building with multiple tenants, you can stagger some of the repairs so that everyone isn’t affected all at once. For example, repairing or replacing the roof will help all parties involved since it’s a shared space. Reroofing 10 houses would cost significantly more money.
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Taxes

As a commercial property owner, you can expect to pay taxes on your property and the income it generates. These taxes may be deductible, depending on the type of tax and where you live. You may also be subject to state and local taxes in some areas.

Understand Your Tenants

Many people prefer commercial investments because the relationship with their tenants is usually more professional. Rent is often paid on time and defects and repairs are generally brought to light faster than with a residential rental. If your tenants will have clients coming to the building, they will want to keep things in good condition.

Do your research on the area and potential market for your commercial property investment in [market_city] so you can be sure to find a tenant that will stay long-term. Consider what sort of tenants your building will attract, as well as any competition they may have in the area from other businesses. Choosing an informed tenant will help ensure success down the road.

Get Your Financing Squared Away

If you’re considering a commercial property purchase, remember that you can’t use an FHA loan this time. You’ll either need the cash upfront or to be pre-approved for a commercial loan. Take note, or you could miss out on your perfect property simply because you lack the necessary funds.

Before you start your search, get approval so that you have the money ready for your purchase. It is common for first-time commercial property investors to seek out a partner to help with financing their endeavors.

Work With A Mentor

Collaborating with somebody who has prior experience in commercial real estate will help you advance as an investor in more ways than one. You’ll not only receive guidance when it comes to the ropes of the business, but also helpful intel regarding the real estate market in your local area. Here at Unify Capital Co., we work closely with individuals who want to invest in commercial real estate. Forming a well-rounded and prosperous portfolio is easy when you have reliable expertise on your side!

The ideal mentor will help steer you clear of many of the common mistakes investors make. You might also want to consider having a partner for your earliest deals to get a feel for things and minimize your overall risk. There’s no substitute for learning the business first-hand. Working with the right mentor, you’ll be able to pick up tricks of the trade that can’t be found in books or blog posts.

We specialize in commercial real estate and would love to help you with your needs. Call us now for a free consultation! (877) 864-3926.