Don’t Make Mistakes I did as a Commercial Investor/Owner/Manager

[Danny Randazzo]

When I closed on my six unit commercial property with 5 out of 6 units occupied, my thought was: This is no big deal, I can find one more tenant and self manage 3 current tenants with triple net leases (1 tenant has 3 units). I’m sure most of the BP community is familiar with triple net commercial leases so feel free to skip the summary and jump to the next paragraph. A triple net lease stipulates that the tenant, in addition to base rent pays for taxes, insurance, and all other fees (electrical, association dues, maintenance, etc.). Having a commercial triple net lease puts most responsibility on the tenant to take care of anything that breaks inside the unit and the owner just needs to collect rent checks and take an email or phone call per quarter. Commercial tenant management is a lot less time intensive versus residential in most cases.

Six months into my commercial management experience, I found the management to be fairly straight forward without major issues requiring significant time. Two mistakes I’ve made:

• 1.During due diligence I did not get all expense statements from the seller. The seller was adamant that they did not pay any extra expenses and tenants paid everything with triple net leases but I learned after closing that wasn’t completely true. I learned that one of my buildings was not sub-metered for water and there was one water bill the owner’s property management company paid. The average monthly water bill is $25 so it’s not a huge deal but still a lesson learned when dealing with commercial triple net leases. Always check to ensure there are no outside expenses the owner pays!
• 2.As a self-manager, you need to establish what tasks you’ll do versus paying someone else to do. For me it’s hard to pay someone to do a task that I can “easily” complete. I need to improve on this because I spent three hours to clean a sign frame, paint the frame, install the frame brackets and put up a new sign for my new tenant (100% occupied now). It took way too long to get this job done because I don’t have all the power tools that a professional would have. I should have paid the sign company to drive out and install it so I could have spent my three hours doing something more productive. Figure out your time value of money for tasks you will do and what you will pay for. 

[Danny Randazzo]

@Anthony Gayden Thank you for the comment

@Jade S. You are right that part of my purchase request was to see all financial records (income and expenses). I don't know if the seller or PM purposefully forgot to include the records but it was a miss on my part. I was lucky that the expense was very minimal and did not change the purchase/cash flow/value. The seller was a large developer so I'm guessing they didn't monitor property financials as closely as I do. It's definitely a lesson learned for me going forward to ask more obvious questions. For example, Mr. Seller are you 100% sure that you have no outside expenses that the tenant's don't pay. Or I could have called the city to ask who is paying the water bill or if it was sub-metered. 

@Katherine S. I wrote a post covering how I got started and purchase this property here: https://www.biggerpockets.com/forums/223/topics/41...

I will also message you with more information.