Leasing a commercial real estate property all alone may be a challenge, but it is not difficult. Although it tends to be an overwhelming assignment, it isn't inconceivable. You can save thousands of dollars in real estate commissions by doing it yourself. One of the processes of leasing that owners get hung up in negotiations. Some owners may not want to confront the prospective tenant or haggle with the price. If you can get over the talks, the rest is easy. Real Estate Brokers will tell you that negotiations are art and take years of learning to persuade you to give them the listing. Here are suggestions to make it easier for you to lease your commercial real estate.
First and foremost. Find out who you think the best tenant will be for your property. in other ways, can you determine the property's suitability? If you own a restaurant building and zoning and deed restriction prevails, then you may have no choice to lease it as a restaurant building. You can always check with the city or local government to see if you can request a change. You may have to face a zoning and planning committee to discuss the reasons of your change. Be prepared and have some information to back you up your request. A residential building may be changed into a commercial building; land zoned for residential may be converted to commercial or vice versa. You can convert specific structures into another type of commercial property if it makes sense. If there are no restrictions, think about the property's best potential and consider whether you can convert the property into something else. For example, a Hotel can be converted to an assisted living facility, a half-way house, or a drug rehab facility. An old box retail store or retail center can be converted to a storage facility or warehouse, apartment buildings turned into condos, or a concrete tilt-wall Industrial building can be converted to an office building. Find the highest and best use of a property to maximize its income and realize its highest potential. Once you understand this concept, you can lease your property for more money. If you own land, see if it is cost-effective to bring utilities up to the area. If it is not, check out the cost of placing a septic tank or water well. If those costs are too much for you, then offer the buyer a list of contractors they can contact to place utilities. Look into leasing your land. You can create a ground lease. Changing the layout of a building can also make you a lot of money. For example, you can turn a 20-unit apartment into a 10-unit apartment and make it the living area more larger and more attractive. You can take a motel and convert it into medical spaces. Let your mind run wild and experiment.
Have someone look at the property and let them evaluate the look. Does the property look old, run-down, and tired? Can you get by with just putting on a fresh coat of paint? Or can you do something to the elevation where it looks more modern? If money is the issue stopping you from giving the property a fresh look, perhaps you can get a temporary loan from someone and have it written that you will pay them back plus interest when you sell the property or seek a rehab loan lender. Ensure the interior and the exterior are clean from debris. Hold back the building out to the interior. The prospective tenant will want to do their build-out and talk about that in the latter part of this blog. Does the parking lot look good, or does it need a fresh coat of asphalt or concrete patch? Change out the light bulbs to the newer LED white light. Clean the floors and walls or paint the walls or ceilings or replace ceiling panels. Try to remove the musty smells. Remove old carpet or flooring and replace it with new flooring. Add air fresheners to the interior. If you can't make the fix yourself, you should employ a contractor or handyman.
We advise that you hire an inspector and make sure the property is up to City or County code. Is the electrical, plumbing, and HVAC in order? Is the roof in good shape? Do you need to make some repairs or maintenance? If the property was built before 1978, have the property tested for lead-based paint by a certified lead base tester. See if there is asbestos in the building and make sure it is not fraying. If removing lead based paint and asbestos is prohibited, perhaps you can encapsulate it. Whatever you do, contact your local EPA office and seek assistance.
After the property has been reviewed and all the essential fixes have been made, your next step is to figure out the rental price. Before we go into setting the rental price, let's talk about the type of rent and terminology. There are Gross Rents, Net Rent, NN Rent, and Triple NNN Rent. Gross Rent is the total amount paid for a rental before subtracting other expenses, such as utility and maintenance. Net Rent, on the other hand, refers to an agreement where the tenant pays a portion of the tax and insurance. This type of Rent can be defined as NN Rent or double Net. In NN Rent, the tenant pays only Taxes and insurance, and the landlord carries the cost of the maintenance. In NNN Rent, the tenant pays for Taxes, Insurance, and Maintenance. It is best to set all of your leases NNN. This way, you will not have any landlord responsibility.
You don't want to charge more than the market rent on your property because you will have difficulty leasing it. The best method to obtain a rental price is to see what the completion is renting their property. Drive-by properties near your property and call the for-lease signs. Each year you will have increases in the Rent to cover your expenses. The cost of living insurance and property taxes goes up each year, and you have to cover that. If you live far away from the property and cannot drive around to obtain comps or do not have the time, go on commercial listing website sites and do a search for Lease and the type of property you have, and the zip code. You may find a list of properties with the rental price on the broker's listing memorandum. If the price is not published, email or call the broker and ask them the going Price Per Square Foot or PSF for the property.
Comparable lease information is typically good less than a year and better when six months or less—one thing you may want to factor in when. You are leasing your property to factor annual increase. It is best to negotiate annual increases, let say 3% annually. Sometimes the tenant may request an increase in their Rent after the first five years. Everything is negotiable, but the best increases are annual due to the rise in the cost of living annually. Some tenants may ask for the option to lease after their Lease expires. It is up to you whether you want to give them options. It is best not to give options because when their Lease expires, you can negotiate a better rental price based on the market price. If you do give them options, offer the five-year options, or if you feel the tenant will be there longer then negotiate a longer term. Always make sure you ask for a rental increase during the term of the Lease.
In most cases, the tenant will not want to take the property as-is and will require building-out to their specification. They may ask you to pay off the build-out or give them a build-out allowance. Build-out costs can be expensive—hiring contractors and overseas built-out may be a headache and time-consuming. Most of the time, the tenant may plan on how they like the build-out to look. If you give the tenant an allowance, you will have to recovere that expense, and you may want to break down the cost and add it to their rental price. Do not give the tenant the entire build out allowance directly. Make payments in tranches and pay the general contractor they selected. One way of not having to pay a build-out allowance is to give the tenant free rent. Giving up to 3 months of free Rent may help you avoid paying a build-out allowance.
After you know the rent price of the property, you are ready to market your property. I recommend that you create a one-page flyer with all the detailed information about the property and create a walkthrough video showing the property's interior and talk about the traffic count and the surroundings. You can also do a drone video showing the property from the air. If you do not know how to do this yourself, you can hire someone inexpensively on fiverr.com. Fiver.com has many freelancers that can do the flyer and edit videos for you at a very reasonable price. Just give them the pictures and the detailed information, and they can put it together. Choose a freelancer with a 4.8 to 5.0 rating. Don't be afraid to ask them to show you some of their work. You don't pay them until they complete your flyer or edit your video, and you are fully satisfied with their work.
Make sure to visit the HUD.gov website and read their information about laws against discrimination. It is best to acquaint yourself with government laws when marketing your property. Ensure that your detail about the property does not affect any class or person and does not discriminate because of race, color, ethnicity, religion, sex, or so on.
After you complete your flyer and video, you are ready to list your property. You can list your property for FREE at www.newlista.com. We will put your property in front of many prospective tenants.If you own a retail property, be aware of the type of tenants leasing space in other areas. Most of the time you will see several different types of tenants next to each other. As a retail landlord, it is highly suggested to seek National Franchise tenants because they are well known and can bring traffic to your property and offer corporate guarantees on the Lease with millions of dollars in backing. You may want all national tenants or a balance of National Tenants with stable local tenants leaning more towards National tenants who will offer you better stability.
In addition to adding your listing at www.newlista.com, you can also post your property on Facebook. If you have not signed up with Facebook, please do so. On the left-hand side of your Facebook page, you will see a word that says, Groups. Click on that, and then on the top of the search box, search Commercial Real Estate. You will find many Commercial Real Estate group pages. Make sure to join them. Once they approve your invitation, you can post your property for Lease. There are many groups related to Commercial Real Estate. You can do a refined search, let say, your city and the words Commercial Real Estate for Lease or USA or any State. You can also search for Commercial Real Estate tenants, if you are leasing an apartment building, you may want to create an advertising campaign on social media platforms such as Instagram or Facebook and target it locally. Search online for business.
Instagram.com and business.facebook.com are good sources. Another suitable place to market your property is linkedin.com. Linkedin.com also has a group feature like Facebook, and you can find many groups there and post it. Also, we recommend youtube.com. When you register with youtube.com, you can upload your video tour or a drone video of your property. Make sure you place some keywords so that when someone is searching for a video on a specific property, they will find yours. For example, you own a retail center, on the heading Retail Center for Lease in "City" and "State." Also, write a description of the amenities. Other areas that you can try to lease your property would be Local classified ads. Search Classified advertisements in your city, craigslist.com, instagram.com, twitter.com, and pinterest.com.
Also, word of mouth is the best. Let everyone know that your property is for Lease. Offer a finder’s fee if you want to. It would help if you qualified your tenants before going into negotiations. If you own an apartment building, you want to make sure the prospective tenants fill out an application and agree to do a background and credit check. You will collect at least $50, $75, or more per person, depending on the cost to run background and credit checks. There are a few online resources for that: just search bank ground and credit check. Make sure if you are leasing the apartments to the couple that they both have jobs. In case one loses their jobs, the other can take the reins in paying the Rent. Some prospective tenants may ask for a short-term lease such as six months, but I suggest that you offer them 12 months and give them some incentives to stay longer, such as possibly giving them one month free or 36 months lease with one increase in Rent after the first year but not the third year. You may want to offer some amenities such as free use of the clubhouse by appointment; free trash pickup at your door, dog park, free pet grooming, free movie nights with an indoor or outdoor theatre, free popcorn, cookies, snacks, and drinks, or a free apartment parties with food, drinks, and gift giveaways. You may want to open up a convenience store inside the apartment complex carrying everything from food items to beer and wine and ice. You can lease the space to a convenience store operator if you do not want to run the store. Also, you can request a percentage of their profit. This method is also called a percentage lease. If you are leasing your office space, you may want to offer more amenities, such as a free conference room or large meeting room by appointment. Also you can offer them free use of fitness facilities, free use of a break room or a stock deli, use of secretarial or live answering service at discount rates, designated parking, free car wash once a month, onsite security or parking security, after-hours usage and so on.
Now here is the crucial part. You are negotiating the Lease. Always start a bit higher on your price because the prospective tenant will want you to discount the Rent most of the time If the property is located in an exceptional area, where there’s a demand in a property like yours that may not be the case. You can demand whatever you want. If you get a call from a potential tenant and offer you a verbal price, do not accept it right away. Your reaction will be to be a bit hesitant and twitch. For example, when they blurb the price, just flinch, say "Wow" a couple of times, and be quiet. Stress the amenities that you have to offer. Then tell him or her I don't accept verbal offers.
Ask him or her to give it you in writing in the form of a letter of intent. A letter of intent is a non-committal way of receiving an offer without accepting it. If they tell you I will submit you a lease contract, tell them you would rather see a letter of intent first. Ask him to send it to you by email with his or her complete contact information, including his or her cell phone. When you get the letter of intent, look over it carefully. If you don't agree with the price or anything on it, take a pen and scratch it out and change it. Scan it and email it back and follow up with the person. Make sure you give the prospective tenant a deadline. You don't want to give him or her many weeks to make a decision. If you dread making phone calls, email them once or twice. Sometimes emails go into the spam box, or the investors get too many emails to fall through the cracks. If you don't hear from them, then text him or her on their cell phone. Ask him or her if they received your counter offer. The letter of intent is to iron out the details and come to an agreement on the firm offer.
Once you agree, you are ready to write up the Lease. The Lease may be a custom lease or a premade lease. If you don't have a lease, I advise getting an attorney to write one up for you and make sure it complies with your state statutes. Some other states may have different laws. A tenant may give you the Lease but advise that you allow an attorney to review it. You want the Lease to be in your favor; however, you do not want it to be one-sided. The attorney's job is basically to protect you and make sure that the clauses are valid, and offer you advice. You will obtain the contract, sign it, submit it to the prospective tenant and ask them to sign it and provide the first-month deposit and the first month's Rent. Some landlords request a first and last month's deposit and the first month's Rent. Most tenants may frown about that, but you may consider it if you feel they do not appear strong enough. If the tenant is a national tenant, ask them to back the lease with a corporate guarantee. You will have peace of mind that the tenant will guarantee the rent. If the tenant is not a national tenant and a corporation, you may want to ask for an insurance bond to pay their rent if they default. If the tenant does not qualify for a bond due to the business length of time, you can request a letter of credit from their bank for two years. The bank will guarantee the rent. If the bank refuses to issue a letter of credit, we suggest that you not consider leasing the property to the tenant.
This document is for informational purposes only and shall not constitute any type of legal, professional or investment advice. and may not reflect the current laws in your area and we suggest that you consult with an attorney or other professional in the field if you have doubts on what actions you should take. We do not accept responsibility for any omission, error, or inaccuracy in this document or any action taken in reliance thereon.The above websites mentioned are registered names of their respective companies. The above websites mentioned are registered names of their respective companies.