There are many differences between residential and commercial property management. In this article, we are going to focus on outlining the key differences that separate commercial and residential property management. We will be taking a look at the ins and outs of both spheres with emphasis on how important is software for commercial property management of properties and for residential properties as well.
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So, here are the key differences.
1. Tenant expenses. In addition to the base rental fee, commercial building tenants need to pay some or all of the expenses related to real-estate ownership. These expenses (can be called “three nets” or NNN) usually consist of property taxes, insurance and maintenance fees. There are several types of commercial leases, such as:
2. Triple net – requires the tenant to pay the net amount for all three types of costs (real estate taxes, building insurance, and common area maintenance (CAM) fees).
3. Gross lease – landlord collects fixed rental fees and pays for all the expenses out of them. These contracts usually have many additional clauses that may increase the rental fee to cover increased taxes or insurance for the landlord.
4. Modified net – a middle-ground between a gross lease and triple net types. The property manager and tenant usually agree to split the maintenance expenses, but the tenant agrees to pay real estate taxes and insurance.
5. Percentage lease – mostly used in shopping centres and retail malls. It typically requires a lessee to pay the base rent and a percentage of their sales volume on top of that amount.
Thus, leasing in the commercial space market is much more complex compared to residential leases. For example, in cases where you collect a fixed amount for CAM fees every month, you need to do an annual recalculation based on what you have received vs actual expenses.
Residential rental rates are typically fixed per price period plus the utilities paid based on consumption.
These challenges raise an imminent concern. Is your software for commercial property management capable of handling these nuanced variables? Can your staff easily calculate amounts and crunch numbers for your clients? SOFT4RealEstate surely can!
2. On-Site manager and maintenance. In larger offices or shopping malls, it is necessary to have on-site managers who can deal with tenant requests or be hands-on when other issues arise.
In some countries or US states, this is even mandatory by law. To track all the requests and work orders, you need to have a system that is easy to use for both the manager and tenant.
In order to quickly follow-up and grant requests or find solutions to problems, the manager should be able to easily track ongoing tasks, set their priorities, change status and review their schedule.
On the tenant’s side, it should be clear when and what will be done, and when any work can be expected to be finished. While renting apartments or homes, you can have maintenance vendors and tenants usually deal directly with them without property manager interruption. Hence, software for commercial property management should be able to meet the naturally higher demands of commercial property management staff in this regard.
3. Duties and workload. This point can be viewed as an advantage for commercial properties. Tenants of commercial buildings have a greater number of responsibilities than residential tenants. With residential tenants, you’re agreeing to residence and accommodation only, and the laws weigh most heavily on the tenant when it comes to evictions, habitability, etc.
Commercial properties are for business use, and the scope of landlord responsibilities here is lower. So, the tables are sort of reversed. What is more, most commercial buildings are only used during the daytime, so you won’t receive midnight complaints about the need to fix a leak, concerns over slow internet or complaints about loud music from neighbours.
For commercial property managers, SOFT4RealEstate implements bidding software for commercial cleaning and other maintenance tasks. Tenants can request and managers can pass through their requests to arrange maintenance. It’s much less chaotic.
4. Leases. It is easier to rent residential property. That’s simply due to the fact that rental agreement documents are usually shorter in length and easily renewable, while commercial leases are more complicated. They are much more detailed, might have difficult extension options. Furthermore, often times rent is reviewed annually and prices are commonly increased with accordance to the CPI or some other fixed index. Commercial lease agreements are also harder to get out of because of many termination clauses.
Even though the processes seem similar: you have tenants, you have contracts, and you have units to lease, maintaining and managing commercial property and residential property are not the same. You need to take the things we’ve listed into consideration in order ensure the best solutions for every problem or obstacle. If you plan on expanding your operation from residential properties to commercial, it’s time to implement software for small commercial business space leasing. They will allow you to make the management aspect of the whole operation, work fluently.