Residential vs Commercial Property Management

Residential Property

Those who enter the field of real estate investment in the Lone Star State likely begin the process by seeking out an investment property lender in Texas. However, the next professional service they need after securing investment property loans is a property management service to run the day-to-day operations of their recently acquired properties.

For many who invest in real estate, hiring a property management firm provides an excellent way to let real estate provide a steady, reliable stream of income with minimal hands-on hassle. Managing your own properties can quickly evolve into a full-time job, which is why many investors choose to turn their property management tasks over to a property management firm for convenience and effectiveness. Property management firms are concerned with attracting tenants, negotiating lease terms, and keeping tenants happy. They must also make sure that the property is maintained and that when tenants depart, they leave the property in good order. However, property management isn’t a one-size-fits-all affair. Commercial real estate investors have needs that differ from those for residential real estate investors. Keep reading to learn more about a few of the key differences that distinguish commercial property management from residential property management.

Complexity of the Job

When a person enters the field of property management, he or she will most likely begin in residential property management. There’s a good reason for that. Residential property management is far less complex than commercial property management. Commercial property management involves the management of numerous details that are of little concern to residential managers, and therefore the burden of documentation is much greater. The lease agreements involved in commercial property management feature a far more complex structure as well, which requires more technical expertise to properly execute.

Tenant Types

Obviously, commercial and residential properties attract distinctly different types of tenants. Therefore, commercial property managers must have a more diverse understanding of the needs of potential tenants, how to attract them, and how to accommodate their business goals. Residential properties, even those of a multi-family nature, attract people who want to use the property as a residence. Commercial tenants will use the property primarily in the pursuit of business endeavors such as retail, food and beverage service, manufacturing, industrial, warehouse space, or other service-driven sectors.

Commercial Property

Tenant Expenses

Residential property management features a straight-forward agreement between the tenant or tenants and the property management firm and property owner. Residential tenants typically pay a monthly rent or lease that includes a set fee. Within that rent agreement there may be pre-determined services that are offered. For example, some leases for multi-family units include not only the rental fee but utility costs as well. However, commercial leases are far more detailed. In fact, there are multiple lease structures used in commercial agreements, including triple-net, modified net, gross lease, and percentage lease agreements. For example, a triple net lease requires the tenant to pay the cost of property taxes, common area fees, and building insurance in addition to the lease fee. Percentage lease agreements require the tenant to pay a base fee plus a percentage of sales.

Property Management Responsibilities

The responsibilities of property managers for commercial properties and residential properties are quite different as well. For example, residential properties are used for residential purposes and are governed by a different set of regulations than commercial properties. As a result, residential property managers have a greater level of responsibility to quickly attend to the needs of their tenants. For example, if a residential tenant communicates that the plumbing has sprung a leak at 2 a.m., it’s incumbent upon a residential manager to provide a speedy remedy as soon as possible. Commercial property managers don’t bear the same level of responsibility because their properties are not used for residential purposes and many properties are only occupied during business hours, making the likelihood of after-hours call-outs lower.

Property management firms offer a great service to both residential and commercial property investors, as they can streamline the tenant acquisition and maintenance process significantly. However, there are different demands for the two types of property managers regarding their required expertise and responsibility. To learn more about the differences between residential and commercial property management, contact Investor Loan Service at (409) 735-6267.