Difference between Residential and Commercial Property Management

[Matt Sullivan]

My wife and I currently own a small residential property management firm and would like to expand in the future.  One area of expansion would be into the Apartment and Commercial Building Management.  Of course I want to do my due diligence before jumping in to something I don't know.  Can someone explain the differences between Residential and Commercial Property Management, and maybe have a resource (book, blog, etc) that they recommend to learn more?

[Joshua Leite]

Originally posted by @Joel Owens:

Commercial PM is worlds apart from residential. Apples and Oranges.

You are dealing with business tenants.

If you want to do mom and pop small town commercial tenants to mix in with residential that is one thing. If you are talking building up to larger more quality properties you will need a whole back end infrastructure. 

 I agree with what Joel says above. There are a number of things regarding commercial property management that you would need to be aware of going into it. I have been working as a commercial property manager specializing in low, mid and high rise office buildings as well as single tenant and multi tenant industrial buildings/parks.

NNN leasing (or NN or N) involves the tenant paying for costs such as insurance, taxes or all of the maintenance (including property management fees). Commercial leases also come in different varieties such as gross lease, modified gross, modified net, triple net, true net, etc. These leases are typically much more complex compared to residential leases and typically multi-year.

With the above leases you will be looking at completing annual CAM (common area maintenance) reconciliation based on your actual expenses vs. what you received from tenants over the year based on your budget estimates. Business tenants will audit this reconciliation and push back on charges they don't think they want to pay.

I could go on about more of the differences and what is involved with commercial property management but then I'd have to charge you hourly for consulting fees ;).

Concepts for you to research: CAM, CAM reconciliation, gross leases, net leases, E&O insurance, service contracts, trust fund accounting, MRI, Yardi, and local licensing laws.

Not a lawyer or tax professional, the above is just my opinion and not advice.