Owning a commercial building is a great investment for your future. Not only can a commercial property increase in value over time, but it can provide you with a source of income. Whether you own a multi-family building with lots of tenants or a mixed-use building with retail and offices, it is important to make sure you have all your tenants on leases.
Why do business owners prefer a commercial property lease? Here are some reasons leases are the only way to go when renting space in your building.
Having a commercial property lease is important if you ever decide to sell the property. If a potential buyer goes to a commercial mortgage brokerage company in Calgary to get financing for buying your property, one of the first things they will ask is how much income the property generates.
When your property has leases, you can provide the amount of monthly/annual rent to show the rental value of the building. Secured leases guarantee that you will have this income for the duration of the leasing term. The tenants are bound by lease contracts thereby making the property income solid. Without a commercial property lease, your tenants could vacate their spaces at any time. Lenders for commercial properties want to know that if they place a mortgage on the property, the rent will cover the costs of the payments and other expenses.
Another reason owners prefer commercial property leases is because you will have less tenant turnover. Having leases helps to reduce extra paperwork for your commercial property managers in Calgary. Once a long-term lease is in place, the tenants will provide payment regularly until the end of the term. Commercial property leases also have all the tenant’s information in the event you need to contact them for any reason.
Your commercial property value is based on age, condition, market comparable, and location. The other portion of the property value is based on income. When you have secured commercial property leases, you can show that the property is making an “x” number of dollars regularly. Appraisers look at these numbers to determine the “cap rate” or rate of return on investment should you be buying or selling commercial property. Month-to-month leases are not considered consistent income and might be discounted when trying to determine the “income approach” for a property appraisal.
For more information on commercial property as an investment, contact your commercial mortgage brokerage company in Calgary and your real estate agent.