Having commercial properties in your portfolio is a great position to be in. With multiple and diverse income streams, you often can enjoy greater financial stability – and greater capital growth. However, there’s a large number of property portfolio owners who are missing out – and this is affecting their bottom line. They may be doing ‘okay’ on paper but as they make some common property portfolio owner mistakes, their profit potential is tapped – and they could be doing much better.
In this blog post, we discuss what these common mistakes are. And, we advise you – as a property portfolio owner – how you can remedy these errors to reduce your costs, increase your profits and maximise your returns.
1. Not fully understanding lease responsibilities
A key starting point for any landlord should always be the lease. Understanding each and every part of it is vital to ensure clarity from the start – and avoid costly mistakes.
From break clauses to lease renewals, there are many things you need to understand as a landlord. Largely, when you come to put the property back on the market you need to be clear what your tenants repair responsibilities are – also known as dilapidations.
Landlords who are blasé about this vital part of the lease have been known to lose between £15,000 – £20,000 when it comes to repairing a property in order to get it ready for market. Repairs which should have been done by your tenant.
Instead, we advise getting advice on your lease responsibilities – so it’s clear what your tenant must do before they vacate your property.
2. Not knowing how to recover rent
Another common mistake is not understanding what measures there are to recover rent arrears. Missing, lost or late rent can cause significant financial damage – and stress. However, it’s not a lost cause – and there are things you can do to solve the problem.
Working with a commercial agent acts as a neutral intermediary body – making the process simpler to collect money, minimising the impact on the tenant-landlord relationship.
Commercial agents offer credit control and debt recovery services. With an arranged payment schedule in place, we issue reminders and chase up money on a regular basis.
3. Not conducting rent reviews
It’s often said that talking about money is Britain’s last taboo. In general, we Brits feel uncomfortable talking about money – which is often reflected in the commercial property portfolio business.
Are you guilty of not taking advantage of reviewing your tenant’s rent due to this cultural fear? Perhaps you’re concerned about offending your tenants – to the point your tenant will cease to lease the commercial property?
The reality is that money can be an awkward subject – but it’s a big mistake to ignore reviewing your rent. By not addressing it, you are essentially “killing yourself with kindness”. Inflation, rising market value and rent processing costs likely mean that you need to conduct a rent review – in order to remain financially stable.
Of course, there are good ways and bad ways to go about a rent review. A bad way would be for you to spring it on your tenant. A good way? Speak to a commercial agent to act as a “buffer”. Again, a neutral intermediary body can negotiate on your behalf – helping you to protect your tenant relationship.
4. Not checking insurance
Not regularly checking your insurance can cause financial woe – or financial destruction in the face of disaster.
You need to make sure you’re adequately insured. The obvious is to make sure you are not under-insured. Your premium must comprehensively cover everything to ensure you’re not out of pocket if something happens.
The less obvious situation is being over-insured. Costing you excessively in premiums, commercial property insurance should be measured to fit exactly – otherwise, it can be a huge waste of money, eating into your profits.
A commercial property consultant can advise the right level of cover for your commercial property.
5. Not having a service charge
Imagine you own an industrial estate of 5 buildings. With 5 individual tenants, your rental yield is likely to be great. But have you thought about who is maintaining space in between the properties?
From drainage to road surfacing, you will need to maintain the industrial estate site as a whole. When landlords don’t include a service charge to cover this essential maintenance, the cost can eat largely into your profits.
Additionally, if maintenance isn’t carried out due to your rising costs this can dramatically devalue your property over 12-18 months.
Instead, include service charges in your lease – and collect them regularly to ensure you can maintain your property as a whole.
6. Not taking advice
Not seeking advice is the biggest mistake property portfolio owners can make. At the end of the day, your property portfolio represents a high financial value. And therefore, deserves a high value of knowledge to optimise its return.
When a ‘DIY’ approach to commercial property portfolios is adopted, this is where not only do things go wrong – but you risk losing earnings.
Commercial property advice helps you remain neutral – treating your property portfolio as strictly business-only. Removing any emotions from the landlord-tenant relationship avoids any personal deception, increases the security of your property investment – and maximises your potential return.
Commercial property portfolio advice
At Mounsey Chartered Surveyors, our property consultants are experts in commercial property and commercial leases – and can help you make things crystal clear for you as a commercial property portfolio owner.
Commercial property consultancy
Time to revisit the leases you have in place? Or have you decided you’re ready to maximise your profit? The earlier you get advice, the more we can do for you.
Speak to us to see how we can help you optimise your commercial property portfolio – and discover how our services can add value to your long-term business plans.
