Making money through real estate isn’t limited to residential real estate properties only. Although commercial real estate for rent is not necessarily the first thing that comes to mind when thinking about investment property owners, it definitely has its tenants and generates profits.
A commercial real estate property might refer to retail buildings, warehouses, office buildings, apartment buildings, “mixed-use” buildings, and industrial buildings. There are many benefits to investing in a commercial property including the increased potential for earning profits. Nevertheless, high returns don’t just happen right away. It takes hard work and a thorough understanding of how to make the most of the investment property.
Related: The Best Investment Strategies to Make Money in Real Estate
There are some traditional methods and other creative ones to boost rental income from commercial real estate for rent. To learn those, continue reading below:
1. Add More Space to the Commercial Real Estate Property
The first and most common way to boost rental income or positive cash flow from commercial real estate properties for rent is by optimizing the use of the space within the commercial property. If you’ve bought a commercial real estate for rent that is still not fully finalized, consider finishing the incomplete parts by dividing the interior in a way that allows as many offices as possible and reasonable.
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Keep in mind that tenants will appreciate a well-designed space. Thus, don’t make the space too small to the point where it becomes insufficient or uncomfortable, but also don’t make it too big for what it’s needed for. Tenants don’t want to pay for a 500 square feet office when they’re only actually using 300 square feet.
If there is more demand from more tenants for commercial property but they can’t be hosted in the already available space, then adding square footage to the commercial real estate for rent is another economical option. Depending on the investment property’s purpose, you may boost its rental income by adding more offices, event spaces, parking, storages, or an employee gathering space.
2. Offer Commercial Real Estate Tenants Additional Services
Offering additional services will not only result in a boost of your rental income but can also give your commercial real estate for rent a competitive advantage over similar real estate properties. For example, the investment property owners can offer maintenance, trash removal, or cleaning services to tenants when they sign the lease; they might be willing to pay extra to avoid these responsibilities.
Vending machines, although they might not seem like an ideal solution, can also be an extra source of rental income. Real estate investors can place coffee, snacks, or drinks machines in common areas of the commercial real estate property or near entryways so that they can be exposed to the maximum number of tenants. Tenants appreciate vending machines as they can grab a quick cup of coffee in the morning or a late-night snack.
Another great example of additional services that boost rental income or positive cash flow of commercial real estate properties is parking or storage space. There are many possible ways for real estate investors to use this space to create extra rental income. One way is to only rent out offices without parking space and offer an extra fee for parking in the lease (together with the monthly rent), or to rent the parking lot on an hourly or daily basis. Another way is to provide free parking for everyone and offer a covered spot for a fee. Real estate investors can even convert some parking places into storage units and rent them out to tenants.
Finally, instead of just keeping the outside area empty, real estate investors can easily make money from it by offering advertising places to the businesses renting their commercial real estate property. For example, they can install a billboard on the outside and offer it for a monthly subscription.
3. Increase the Commercial Real Estate Property’s Rent Strategically
The most obvious approach to maximize positive cash flow is to raise the amount of monthly rent. This seems like the easiest solution; however, commercial real estate investors can’t implement this method every time they need more cash – the timing must be right. Tenants will accept higher rent payments if they feel the rise in price is justified. Otherwise, they may be tempted to leave the commercial real estate property and search for another.
So, when is an increased rent acceptable? If the economy and the local real estate market are doing well, the investment property owners could use this to justify the higher rent. When the economy is healthy, tenants are most likely doing well financially, and thus won’t object to paying a little more every month. Making improvements or renovations to the commercial real estate property is another reasonable motive for increasing rent as this adds value for tenants.
Having said that, when increasing rent, it’s best to do it gradually to give tenants time to adjust.
Related: How to Know How Much Rent to Charge for the Investment Property
4. Maintain the Commercial Real Estate Property
Some commercial real estate investors consider boosting rental income or positive cash flow by reducing the amount of maintenance. While this approach may work in some occasions, it’s actually more likely to backfire. Commercial real estate properties accumulate a lot more wear and tear than residential real estate properties. Therefore, regular maintenance is more practical than to be stuck with emergency replacement costs or expensive repairs.
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Commercial property owners should arrange routine checks and appointments for repairs. In addition, make sure you have a repair company on hand; if you have a plumbing or electrical problem, it can quickly reverse the damage to keep you from losing tenants.
Maintaining the commercial property sometimes includes making changes to the exterior or interior of the building. If the windows and doors of the commercial real estate property are outdated, not fashionable, or poorly designed, consider updating them as this can improve the appearance of the investment property, and thus increase its value. Moreover, painting the outside brick is another simple and easy way to refresh the appearance of the commercial property without making major structural changes.
Another thing to take into consideration is maintaining and increasing security. Adding alarm systems, gates, and shutters can increase the commercial real estate property’s value and makes it more attractive to tenants. By better protecting themselves from unexpected costs, commercial real estate investors can ensure a positive cash flow and a boost in their rental income in the long term.
5. Decrease Commercial Real Estate Property’s Vacancy and Tenant Turnover
Vacancy and turnover cost money in multiple ways – advertising costs, repair costs, etc. The best way to minimize vacancies (thus ensure positive cash flow) is by finding long-term tenants and do what you can to keep them! In this way, commercial real estate property owners don’t have to deal with a turnover which leads to a vacancy.
Other ways to ensure keeping commercial real estate properties occupied is by charging the right rent and having characteristics that set your commercial property apart from competitors, such as an excellent location as well as customer service. The investment property owners have to treat tenants with respect and professionalism, ensure them that their concerns are valued, and respond to their needs urgently and satisfactorily. A good relationship between property owners and tenant keeps them from thinking about moving.
Related: What’s the Secret to Maintaining a Good Landlord and Tenant Relationship?
In case your tenant must move from your commercial real estate property, the vacancy can still be minimized through keeping turnaround time to a minimum by posting ads the minute you learn of the move in order to ensure having a new tenant to move in immediately, thus maintaining a positive cash flow and high rental income.
Commercial Real Estate: The Bottom Line
One of the best things about real estate investing is the endless opportunities to generate positive cash flow and build wealth. Investing in a commercial real estate for rent offers property owners plenty of approaches to follow in order to boost their rental income. Savvy real estate investors conduct a thorough real estate market analysis to determine which approach works best for their commercial real estate property and recognize that more than one method can be applied. For more tips on investing in real estate, make sure to check out Mashvisor.
