Multi use buildings vs multi family apartments

[Chris Connery]

I'm currently evaluating a 3 unit multi use building. Two apartments and one retail space on the main floor (barber shop) all units currently rented. It's in a very nice area of town where there are very few closed businesses. The retail portion of the building still makes me nervous. Any thoughts?

[Matt Lefebvre]

Hi @Chris Connery, the biggest difference you'll be seeing between apartment rentals and commercial space rentals are going to be in the leases.  Something I'd encourage you to do is read every line of the lease agreement in place with the barber shop because the strength and structure of the lease is going to determine whether you're making a good investment or not.  Unlike residential leases, which while do have some flexibility, are fairly heavily regulated in what you can and cannot require a tenant to do, commercial leases tend to be very freeform and are minimal on the regulations.

Look for the following items in the lease:

• Length of tenancy (how long they've been there and how many times they've re-signed a lease)
• Length of lease (how many years are left on the lease)
• Who pays what utility
• What maintenance is the landlord responsible for versus the tenant
• Are there any rent escalator clauses for the tenant

The benefit to commercial tenants is typically their willingness to stay in the same location for longer and that they, usually, aren't as time intensive as a residential tenant.  With that being said, on a dollar for dollar comparison of the same square footage, you might be able to charge slightly more for an apartment than a retail space.  All depends on the area.  In short, don't be scared so long as you know what you're looking for and that you have an established business in your property.