Canadian commercial real estate investment reached $49.3 billion in 2018 — 68.3% above the 10-year average. That was an annual record for the third consecutive year. 2019 is shaping up to be another banner year.
It’s statistics like these that lure amateur investors to turn to real estate. Yet, as with any investment, just because the market is strong doesn’t mean that success is guaranteed.
We interviewed Leslie Quinsay, the co-owner of a real estate investing company. She is the author of Legacy: a guide to successfully transferring wealth from one generation to the next. A past Canadian Real Estate Magazine “Investor of the Year” award winner, Quinsay provides expertise from the perspective of a business owner, entrepreneur and investor.
Here are Leslie’s takes on the five mistakes to avoid as a new commercial property owner.
1. Relying on one tenant
When you are shopping for real estate, avoid buying a property that has only one tenant or a property where one tenant occupies the majority of the building. This puts you at risk of having your cash flow dry up if your tenant leaves or goes out of business. It can take longer than expected to find a replacement tenant.
A better option is to look for commercial spaces that have multiple tenants of equal size. This means you will be getting income from various sources without relying heavily on just one tenant.
2. Having a meager reserve fund
For a commercial property, unexpected expenses can be quite costly. Filling vacancies often takes longer than residential properties. A lack of reserve funds can be your undoing. It’s imperative that you have enough funds on hand to get through these situations. Don’t skimp on your reserve fund! If you do have to dip into it, be sure to replenish it as soon as you can.
3. Selecting start-ups as your tenants
Tenants that are start-ups or newly in business are risky tenants. They may have a great vision, but without a track record, their longevity is uncertain. Play it safe by choosing tenants that have been in business for a while and have a demonstrated history of paying their rent on time.
4. Neglecting regular maintenance and repairs
A common rookie mistake is to become complacent with repairs and regular maintenance. But leaving these to-do tasks for later can result in liability issues that you are better off avoiding. Also, repairs often get more expensive the longer they remain undone.
Be proactive and stay on top of maintenance and repairs to your property. Not only will it be better for your tenants, but you will also have a property in perfect shape in case you decide to sell.
5. Managing your own property
Unless you are an experienced commercial property manager, you shouldn’t try to manage your property yourself. Though many first-time investors do this in order to cut costs, managing your own property isn’t as cost-effective as you might think.
According to Quinsay, “Hiring a strong, reputable management company will save you a lot of time, headaches and money in the long run.”
There you have it! 5 mistakes to avoid as a new commercial property owner. Are there other mistakes new investors should avoid? Let us know in the comments.
Graduated from the University of Toronto with an Honors BA English Specialization and has completed several publishing courses at Ryerson University. She is a proofreader, editor, and content writer based in London, Ontario.