In a perfect world, you would find long-term, reliable tenants who pay rent on time, take excellent care of their property and have no intention of moving. Unfortunately, the world is not perfect. If one of your tenants does decide to move out, understanding exactly where your expenses are coming from will help you better understand the importance of retaining renters and minimizing tenant turnover.

Property owners are generally not aware of the high cost of tenant turnover. Whether you own one rental property or a thousand, turnover is something that all property owners deal with. Most landlords know that reducing their turnover rate makes sense financially.

Breaking down the costs can help you see the benefits of reducing turnover.

What Is Turnover?

Rental turnover typically refers to the period when one tenant moves out, and then the property is vacant until another tenant moves in. No rent can be collected during this vacancy period, but other bills and costs associated with the property will still need to be paid. As turnover costs can be quite high, most landlords work hard to keep these periods as short as possible.

Turnover rate is the percentage of renters that move out of a property at the end of each contract period. This rate is often used by landlords to help plan their budget, rent costs, and more as it can help them predict how much money they expect to need to invest in turnover periods.

Costs Involved With Tenant Turnovers

The tenant turnover cost is something that every landlord worries about whenever a renter moves out. Thankfully, you can keep costs fairly low by getting ahead of maintenance and repairs, attracting quality tenants, and charging an application fee. Most times, the amount of work involved in the turnover process is more of a hassle than retaining the tenant to begin with. This is where a property management company like IPA Commercial Real Estate can help.

1. Administration

Time is money in most industries, and property management is no exception.  When it comes to budgeting tenant turnover, you need to factor in the administrative time it takes to market your newly vacant property, process move-out paperwork, coordinate repairs and cleaning services, screen new applicants and process lease agreements for future tenants.

2. Marketing

Sometimes a simple online listing is all it takes to get your vacant unit rented fast.  But in a slower market, advertising your property can involve signs, flyers, or print ads, all of which will contribute to your bottom line.

3. Cleaning

Despite your tenants’ best efforts, they might not be able to get your property back to the level of cleanliness you require for the next tenant.  Depending on the type of rental property you own, cleaning is essential if you want to attract tenants. Showing prospects around a dirty place sends them a signal that the landlord does not care enough to keep the property clean. Very few industries can get away with a less than thorough cleaning.

Even if you use their security deposit to cover the cost of cleaning and repairs, there might be extra expenses that go beyond the deposit that will come out of your pocket.  If the vacating tenant has lived in the property long enough, some of the restoration expenses will not be covered by the security deposit at all.

4. Utilities

There is also the cost of utilities to consider. When your tenants are not in place and there is no one else to continue paying the electric bill, the water bill, and the gas and trash bills, you have to cover them yourself as a property owner. You cannot leave everything turned off. When vendors and contractors are inside the home, they’ll need electricity. When prospective tenants come to see the home, they’ll want to turn on lights and sinks.

5. Repairs

Once a tenant vacates the property, you have the opportunity to conduct a thorough inspection which may reveal some maintenance repairs that must be handled before the next tenant moves in.  Not only will repairs cost you money, but the longer it takes to get the property market ready, the longer you will be without rental income.

6. Advertising

Another essential tenant turnover cost is advertising. Unless you already have a new tenant lined up to take over, you will need to market your rental to potential tenants. Keep in mind that there are some platforms that allow you to post rental ads for free. However, many others do charge a small fee. Apart from the online route, other advertising options include flyers, newspaper ads, and printed signs.

7. Tenant Screening

It is important to screen your tenants before you sign the lease. In addition to a filled-out application form, you will also need to review various reports. These include credit reports, criminal background reports, and eviction reports. This way, you can confirm that the prospective tenant has a good rental history and can cover rent.

All of these reports, though, cost money. And, if you don’t charge an application fee, you will have to pay for them out of pocket. As such, it is advisable to collect an application fee so you can keep turnover costs low.

8. Vacancy

The longer your property sits between leases, the longer you will go without rental income. If you are relying on your rental income to cover a mortgage payment, you could notice a serious hit to your reserve funds until you find a new tenant.

How to Minimize Tenant Turnover

Tenant turnover is inevitable. Fortunately, there are ways to stay organized, and efficiently breakdown the expenses associated with preparing a property for new occupants. By being aware of the costs affiliated with turning over properties, not only are you are able to plan ahead, but you are also more likely to find innovative ways to keep costs to a minimum. The ultimate solution to avoiding these expenses is by maintaining happy tenants to ensure a low turnover rate in the first place.

One of the best ways to do this is to maintain a great relationship with your tenant. Communication goes a long way. When a tenant has a concern, make sure to listen. Acknowledge them and then try your best to address their concern.

Consider hiring a property manager, such as IPA Commercial Real Estate. Successful property managers are responsive and available, addressing questions and concerns as they arise — and in turn giving tenants the best experience possible. By creating a great experience for tenants, local property managers can help landlords reduce tenant turnover and avoid vacancies.

Why Choose IPA Commercial Real Estate?

Choosing the right commercial property management company can make real estate ownership a breeze. For people who own commercial and industrial properties, working with a respected property management company can be a great resource. With 30+ years of experience in the Inland Empire, the experience of the IPA Commercial Real Estate team provides a depth of knowledge regarding maintenance and project costs.

Just like management in any other business, a respected management company can monitor the care and financial requirements of any property. We can also help evaluate your rent structure. IPA Commercial Real Estate very focused on client properties and tenants and we have the skills and knowledge to make your ownership experience easy and pain-free.

We offer 24/7 Service from our team day or night! Call IPA COMMERCIAL REAL ESTATE at (951) 686-1462 to discuss how we can help you. Let us show you how to add value to your property.

Understanding Common Area Maintenance (CAM) Charges in a Commercial Lease

When you negotiate a commercial lease, you will likely hear CAM charges discussed. During lease negotiations, your rent is only one variable that can affect the deal. The common area maintenance fees (CAMs) that the landlord charges are also a significant part of occupancy costs. These charges have a significant impact on the property’s net operating income and how much tenants pay.

Disputes can arise with tenants when it comes to CAM charges so it is important for commercial landlords and tenants to have a thorough understanding of what CAM charges are/include and how to properly account for them in the lease,

Below, we discuss what CAM charges are, what is included in them, the types of commercial real estate leases that do and do not include them, and how they are calculated.

What are CAM Charges?

Common Area Maintenance (CAM) expenses are fees paid by tenants to landlords to help cover costs associated with overhead and operating expenses for common areas. Common areas are spaces used for or benefited by all tenants and include, but are not limited to, hallways, elevators, parking lots, lobbies, public bathrooms, landscaping and building security.

While CAM charges are very generally maintenance costs related to managing and maintaining commercial property, there really is no one definition as to what exactly is included in them  as they vary based on the market and the property.  CAM charges are designed to provide property owners with some protection from increasing costs so that the property’s return on investment isn’t significantly impacted. These charges typically include the cost of cleaning, maintaining, and repairing common areas of leased property, although the exact charges depend upon the exact lease that the landlord and tenant agree on.  Understand what are controllable and uncontrollable CAM Charges.

It is important to understand the differences between Triple Net Leases, Modified Gross Leases, Full Service Gross Leases and areas in between.   How are your Useable & Rentable square footages and Common Areas being calculated.  What is being charged in CAM?

Why CAM Charges Matter for Tenants & Property Owners

The amount, timing, and payment of CAM charges matter for both the tenant and the property owner.

For tenants, CAM charges can be scary. While the landlord gets protection from fluctuating costs, the tenant may end up taking a hit when expenses rise. On the other hand, CAM fees can be a benefit to the tenant. Some landlords will put off certain maintenance and repairs if they have to bear the cost themselves. Passing these costs on to the tenants tends to make landlords less reluctant to keep up with maintenance. This ensures the tenant will have a clean, well-maintained space. As CAM charges can make up a significant portion of  a tenant’s monthly rental expense it is important that they budget for both the monthly rent and CAM charges so they know what their total monthly expense will be.

For the property owner, CAM charges are important because they represent a reimbursed source of income that is used to pay for the property’s operating expenses. This limits the amount of money that has to come out of their own pocket.

Why Choose IPA Commercial Real Estate?

Choosing the right Commercial Broker and Property Manager can make real estate ownership a breeze. For people who own commercial and industrial properties, working with a respected company can be a great resource. With 30+ years of experience in the Inland Empire, the experience of the IPA Commercial Real Estate team provides a depth of knowledge of the market and full understating of the importance of the above issues.

Just like management in any other business, a respected brokerage and management company can monitor the care and financial requirements of any property. We can also help evaluate your rent structure. IPA Commercial Real Estate very focused on client properties and tenants and we have the skills and knowledge to make your ownership experience easy and pain-free.

We offer 24/7 Service from our team day or night! Call IPA COMMERCIAL REAL ESTATE at (951) 686-1462 to discuss how we can help you. Let us show you how to add value to your property.

Buying commercial real estate, either as an investment property or a new location for your business, is a big decision. Regardless of the reason you are searching for commercial property, you will need to do thorough due diligence to confirm that the property is a sound investment and not riddled with risks.

When investing in commercial real estate, you will want to familiarize yourself with the physical asset at the absolute minimum. But before you sign on the dotted line, there are some questions that you should ask to make sure the property is right for your business.

Here are some important questions to ask your commercial real estate agent when you’re viewing a potential property.

Questions To Ask

When touring potential properties, it is crucial to stay grounded and ask important questions that can ultimately determine your long-term satisfaction in the space. If there is a time to ask all of those questions about your potential space, the property tour is it!

Here are some key questions to consider when viewing commercial property.

How Long Has the Space Been Vacant?

A commercial space that has remained vacant for an extended period of time may present a prime opportunity to negotiate lease rates and terms with the landlord. Every month that goes by that the owner/landlord is not collecting rent on the space or selling the property outright means a total loss for them. You want to explore options that are favorable to both sides but that can save you money in the long run.

What is the Property’s Zoning Classification? Is it Suitable for the Intended Use?

Always check with the city to ensure the space you are interested in is properly zoned. In addition, you will want to confirm that your particular “Use” is appropriate as well. Just because the zoning meets the city’s requirements does not mean your particular “USE” will be approved.

What Type of Commercial Lease is Being Offered?

Knowing what type of commercial lease is being offered is one of the most important items to consider when looking at properties for your new office space. The type of lease determines how your rent bill will be calculated. Ask to see a sample copy of the property’s lease to review it yourself.

What is the Minimum Lease Term?

Typically, commercial properties offer lease contracts with a minimum term length of at least a year. Many contracts require a 3 to 5 year commitment. Longer terms can be restrictive, while shorter terms allow you to be more flexible if you don’t want to be tied down to a property for a certain amount of time. However, long-term contracts give you more negotiating leverage and security with predictable rental costs.

What Insurance Coverage is Required?

Commercial property insurance, a necessity for any real estate owner, covers your buildings and its contents, external signage and other unattached fixtures such as a fence or small storage shed. Whether you face a burst pipe causing water damage or theft or vandalism, the type of insurance you buy and which insurer you choose can mean the difference between speedy claims service and a claim denial.

Is the Property Up to Code?

Commercial building codes in your area could vary from town to town. For all you know, there could be aspects of the property you are looking at that may need to be updated in order to meet the regulatory requirements. If it is not, it will be your responsibility to make those improvements so that the property is up to code.

Familiarizing yourself with local ordinances and other regulatory codes in the property’s location will help you train your eye to search for parts of the property that do not meet requirements. There are plenty of resources you can research on your own about your property’s building code requirements. Most states have a .gov resource that outlines the information you’ll need to know.

Does the Building Have Any Amenities?

Is there a fitness center, building conference room, onsite deli, or other amenities that you and your employees have access to? If so, are they included in the cost of your monthly rent or is there an extra charge?

How Many Parking Spaces Are Allotted to the Space?

Your lease should clearly spell out how many parking spaces will be available for your team. Often, your allotment will be based on the usable square footage of your office. Be sure to do the math and find out if the proposed ratio of square footage to parking spaces is sufficient for your customers and employees. It’s a good idea to poll your team to find out how many people drive their own vehicles to and from work versus how many carpool, bike or use public transportation.

How Do Customers Access the Space?

Tying into the first question, accessing a building is not always as easy as it may seem. Some buildings automatically lock their doors past a certain hour, or the hours of open access might not align with your business hours. Some buildings will have a receptionist or security guard that can give visitors access to your floor. If not, you may have to leave your office to greet your visitors and escort them to your suite. This may factor into your customers’ overall experience.

Who Are the Other Tenants in the Building?

Depending on the type of commercial property you buy, there may be tenants operating there. Commercial property ownership will involve you working with current and future tenants running their businesses out of your property.

Considering the tenant experience will be a cornerstone to your property, knowing any current employees will give you a head start on building those relationships.

You will also learn financial information that will determine the investment potential of the property. For current and future renters, knowing the property’s rent roll will give you a clear picture of what the rental income range of the property could be.

Learning about the payment history of the current tenants will help you assess their reliability as tenants. If they are consistent with their rent, you have a sound income source already confirmed for the property. If not, you will be better prepared if you need to make adjustments.

Does the Building Have Onsite Management/Maintenance?

Onsite stationary maintenance and engineers can be a huge benefit, but whether or not they are onsite depends on the complexity of the building systems. If there is no maintenance on-site, it is important to know how to report any issues, such as electrical or HVAC problems. Additionally, will you have to hire a cleaning service or is there one provided? These questions can determine if there are additional costs or if more research needs to be completed on your end.

Why Choose IPA Commercial Real Estate?

Choosing the right commercial property management company can make real estate ownership a breeze. For people who own commercial and industrial properties, working with a respected property management company can be a great resource. With 30+ years of experience in the Inland Empire, the experience of the IPA Commercial Real Estate team provides a depth of knowledge regarding maintenance and project costs.

Just like management in any other business, a respected management company can monitor the care and financial requirements of any property. We can also help evaluate your rent structure. IPA Commercial Real Estate very focused on client properties and tenants and we have the skills and knowledge to make your ownership experience easy and pain-free.

We offer 24/7 Service from our team day or night! Call IPA COMMERCIAL REAL ESTATE at (951) 686-1462 to discuss how we can help you. Let us show you how to add value to your property.