Commercial Office Space Investing

[Nick Leamon]

Hey BP nation,

I was wondering if anyone here has invested in any commercial office space. I have never invested in commercial space, but the friend that approached me with the information is reliable, but I am looking to verify the info and see if i am missing anything.

1. Typically the minimum Lease in commercial office space is 3 years

2. Commercial office space rates are quoted by the year.  For example office space is my area is $24/Sqft plus expenses, meaning a 1000 Sqft property would rent for $24,000/year, or $2000/month plus expenses

3. Triple Net Leases are common (at least in my area north Dallas) which means the Tenant pays utilities, HOA and TAXES on the property and that is above the $24/sqft rent

4. Does the tenant typically pay for insurance? is this like a rental house where they get a renters policy and I get a dwelling and fire policy? any ball park on rates for a dwelling and fire new construction 1000-1500 sqft?

5. I would assume to account for longer vacancy rates in this space because the number of potential renters is less but have yall found that yo be true? what is a typical vacancy between tenants?

6. Besides repairs and cap ex what other expenses am I missing that isn't passed on to the tenant?

7. Anything else i am missing? or you wish you knew before investing in commercial office space? or things that are significantly different from single family rentals?

Thanks

[Jason Hirko]

@Nick Leamon The tenant will pay the insurance. In a NNN lease, it includes taxes, insurance, and common area maintenance (CAM) charges. The insurance they pay is YOUR building policy, not a separate or additional policy for them. You may require them to have that as well, but they pay your insurance (monthly, to you, as part of the pro rata charges).

You are right in assuming office space has longer vacancy than residential, but the tenants stay longer.

Repairs should be passed along to a tenant. Part of CAM charges.

Don't forget tenant improvements. A lot of commercial users expect you to provide some tenant improvements for them, though office space is usually pretty easy. For example, I just rented out a 4,200 office space of mine in Boerne and I gave them $5,000 in T/I towards building a server room. It is all part of the negotiations, but be prepared to pony it up on the front end to get a good tenant.