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Commmercial building: Property manager or use a landlord app

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  • Commmercial building: Property manager or use a landlord app

    Hi, I have owned and rented SFH in the past but am now buying a 3 story commercial building with 6 office suites. The entire due diligence process was an opportunity to learn and much different then a residential purchase, so now I worry that managing the tenants will be dramatically different also. Would love to get some advice from any experienced commercial landlords on here re the choices below (or others that I haven't discovered).

    Choice 1: an experienced property manager that I've used before. She has a website with pretty good tenant and owner functionality. She takes a 10% vig.

    Choice 2: try a landlord app. The concept sounds great but is the experience as easy as the apps tout?

    Total rents will be $6,000 per month. Thanks for any input.

  • #2
    I would opt for another option. As you learned in your DD process, commercial real estate and residential real estate are completely different industries and investments. It's literally chess and checkers. It may use the same board, but that's where the similarities end. Option 1 sounds like a property management firm that just manages residential properties based on the fee their charging and the fact that you said you've used them before. That is NOT who you want managing the property. If you're going to deal with commercial real estate, you need to use people who are actually in the CRE industry. That means you don't use a residential broker, you don't use a residential property manager, you don't use your residential lender, etc. Keep in mind, almost all of those people will tell you that they "do" CRE, but they're all full of it. There is nobody involved in CRE that is worth their salt, that is also trying to sell houses (the extremely rare exception may be if you're in a very rural area where there aren't any CRE professionals and the res people fill the gap). Additionally with option 1, 10% is an extremely high rate for PM services. Typically the rate on the commercial side is closer to 5% of gross rents, usually with some minimum threshold to cover. It's important that you use someone who is actually a CRE professional as all the nuances are completely different than residential. You need someone who can advise you through any issues that arise, understands how to deal with the tenants, etc.

    Option 2 probably isn't a great idea either. First, many of these apps are again designed for multifamily and they don't have features that you need for CRE such as CAM reconciliation, budgeting, etc. You can make it work, but it's probably not a good fit. Secondly, an app isn't going to do anything more than help with tracking data and book keeping. Those are great, but that's only a portion of what PM entails. You also need to manage service contracts, tenant relations, lease administration, maintenance, capital improvements, budgeting, etc.

    If you feel like you can take on those responsibilities (and are willing to), you could give it a shot. If you'd prefer not to, I would find a reputable commercial property management firm to handle everything. Additionally, I'm not sure what your lease structures look like, but if they're NNN leases, many times the CAM language stipulates that PM fees are part of CAM, and therefore the Tenants are actually responsible for paying for the management. Hope that helps!

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    • #3
      Thanks CREGuy, you nailed it. This is a rural area and nobody has any real experience with CRE. It felt like building Rome doing my due diligence. I'll keep looking for a real commercial property manager but so far have few leads.

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