Commercial real estate as a business: what you need to know. Renting commercial real estate - all the secrets
Leasing commercial real estate and concluding an agreement for such a transaction is not too complicated. However, compared to residential rentals, this area of the real estate market is governed by different laws and regulations. Leasing commercial real estate is a profitable business, but many owners of large office buildings and commercial properties with a small area often face the problem of finding bona fide tenants. If the solution to this issue is relevant to you, then ours will be very useful for you: it will talk about how to rent out premises, do it in the shortest possible time and with the greatest benefit.
Legal basis for leasing commercial real estate
Before we look at how to rent out commercial real estate, let’s look at the legislative acts regulating these actions. The process of transferring commercial real estate for paid use is regulated by the Civil Code of the Russian Federation(v. 34). In accordance with this legislative act, the conditions arising during the process of drawing up an agreement are reflected in the lease agreement - the main document confirming the agreement between the owner and the tenant.
Commercial real estate rental
The main responsibility of the owner of real estate is maintaining order and proper condition in the rented premises. So, for example, Art. 616 of the Civil Code obliges the landlord to independently carry out major repairs within a certain time frame. The same article also outlines the responsibilities assigned to the tenant, including cosmetic repairs of the premises, timely payment of current utility bills, and ensuring order inside the premises.
The lessor is assigned the right to rent out commercial properties on other terms, which must be specified in the lease agreement. Let’s say the landlord can shift the responsibility for carrying out major repairs to a person using the premises on a lease basis, or take on the responsibilities of a tenant.
Stages of real estate delivery
With a competent approach and understanding of all the intricacies of leasing commercial properties, almost every landlord will be able to cope with the issue of how to independently rent out non-residential premises. Let's look at the procedure, describing in detail what needs to be done to conclude the most profitable deal.
When renting out real estate, the main thing is to set the optimal price, find a bona fide tenant and competently prepare documents for transferring the property for rent!
Determining the rental price
This is the first and extremely important stage. If the lessor personally conducts the transaction, the establishment of rental value, as a rule, will not be completely objective. Since any lessor plans to obtain the maximum benefit. But an inflated price scares away potential tenants, while an underestimated figure will raise certain doubts. Many owners of commercial properties turn to specialists (realtor/appraiser) for help, although today many analyze similar offers posted on special sites, for example, Avito, Cyan and other online platforms. This allows you to understand the current market situation and fairly evaluate your own premises.
Remember! When renting premises to run their own business, a potential tenant expects to make a profit from it. That is why, when evaluating a premises, you should take into account the estimated probable income that it will be able to receive.
In addition, when assessing the premises for rent, it is advisable to take into account a number of important factors, including:
- area of the premises to be rented;
- existing layout;
- state of the object;
- availability of furniture and communications;
- location of the object;
- availability of equipped parking;
- transport and other accessibility for the tenant’s business partners and clients;
- visitor traffic (especially for large shopping, entertainment and office centers).
Taking into account the above points and analyzing similar options, you can set the optimal, mutually beneficial price for the premises for rent.
Search for a tenant
Finding potential tenants is an equally important stage when renting out real estate. It is important to decide who to rent the premises to, because finding a bona fide tenant can often be very difficult.
After determining the monthly fee, you need to prepare the text of the advertisement.
Usually it indicates in detail the main parameters of the object - the size of the room, floor, geographical location, infrastructure development, condition of the room and its equipment. It is advisable to highlight the existing advantages of the premises in the text. But you shouldn’t hide the possible disadvantages of the property being rented out, so that during the inspection you don’t end up in an awkward situation and don’t scare off a potential tenant.
You should tell us more about the options searching for potential tenants.
Search through friends/acquaintances is considered the easiest way to find a bona fide tenant. Typically, if they have extensive “connections” in the business community, commercial real estate owners can rent out their premises quite easily and quickly.
Publication of advertisements on special Internet portals, of which there are a large number working on the network. The advantage of this method is that the current rental offer is seen by a huge audience of users who are interested in choosing the most profitable option. But to attract their attention, it is important to create a good ad with a detailed description of the premises, indicating in the text the existing advantages and not forgetting to note the disadvantages. True information about the property will help you find a tenant faster.
Accompany your ad with several photos of the proposed premises. This will help potential tenants quickly determine whether they are interested in your property.
Sending an offer bye-mail. Cafes and bars, large and small retail outlets, beauty salons and other establishments, as well as organizations are often looking for premises to open new outlets or move to a more convenient area. You can find out the e-mail addresses of business owners or managers who may be interested in your premises on the company’s official website.
Features of renting large and small premises
We can help you rent out non-residential premises, depending on the area of the property being rented out. recommendations from real estate market professionals.
For renting out a small space:
You can organize a search for potential tenants in person or through a real estate agency
- Using the help of professionals, you will need to sign an agreement for the provision of services. After concluding a lease agreement, you will need to pay for the agency's services. Of course, you can cooperate without formalities; then you will need to write a letter containing a commercial proposal indicating the realtor’s remuneration, and send it to agencies that work with commercial properties. Typically, the realtor's commission is half the monthly rent (one-time payment).
- Having decided to start searching for tenants yourself, publish advertisements on free Internet platforms, organize targeted email distribution, in addition, placing a banner on the facade (paid service) in the window of the premises for rent (free) will be effective.
Renting a large premises:
If you plan to rent out a large premises, which means it will have a high expected profitability, then you can make a simple website with your own commercial offer. Typically, a website is promoted by contextual advertising using key queries. This allows you to reach the target audience, while in this option you can control the cost of the ad. In this option, you can advertise your property and save on agent fees.
Signing the contract
Competent presentation of the premises for rent– guarantee of a successful transaction. When showing the property, try to provide as much information as possible, drawing the potential tenant's attention to the advantages and likely profit that he will be able to receive when renting this property.
Signing the agreement– the final and most important stage of the transaction. A professionally prepared and executed lease agreement protects the landlord from an unscrupulous tenant. The lease agreement must include:
- identification data of the owner of the property and the tenant;
- address of the location of the object, its area and key characteristics;
- Registration information;
- contract time;
- the amount of rent and the rules for paying it.
For your information! The law prohibits the owner of the premises from increasing the rent more than once every 12 months. Therefore, the document must indicate the largest amount of the likely increase, specifying the period for mandatory notification of the tenant.
The document must contain a detailed description of the rights/responsibilities of the parties to the agreement, as well as the responsibility of the parties for violating sections of the document. It wouldn’t hurt to include in the document an inventory of the property on the premises. So, after the end of the lease, the owner can demand financial compensation for damaged property.
How to quickly find a tenant
A few more useful tips will help you quickly rent out an office or other property.
For owners who are not ready to personally search for a tenant or conduct showings/negotiations, it makes sense to seek the help of a professional realtor. He will objectively evaluate the premises, establishing its real value, take high-quality photos, correctly compose the ad text and begin demonstrating your property.
However, there are some nuances in cooperation with the agency. They must be clarified before cooperation begins.
If a landlord wants to quickly find a tenant for his premises, then he can pay the agency fee himself (many agencies charge tenants for services). This option is often used by owners of luxury real estate or if they own many properties. The money paid to the realtor will, among other things, be spent on the costs of leasing the property. Another quick option for flipping a commercial property is to reduce the rent. And there is no need at all to rent out the premises for “three rubles”; it is enough to reduce the rental cost by 5-10%. Then the premises’ competitiveness increases.
Possible risks when renting out premises
Any owner is concerned about the condition of the premises being rented and wants to have income from the transaction. We will present the main risks of commercial real estate owners and tell you how to protect yourself from them.
Inappropriate use of premises
Any properly prepared lease agreement specifies the purposes of its use and operating conditions. This applies to equipment rented with the premises.
Let’s say that at the conclusion of the transaction the tenant promised to use the premises as a warehouse, but opened a store in it. The landlord has the right to demand cancellation of the agreement without refunding the rent paid and imposing a fine on the tenant.
Damage to property
The property was handed over to the tenant in good condition, with machinery and equipment. But one day it is discovered that the premises are in a state of ruin, the equipment is broken, etc. In this case, the lessor may demand full compensation for the damage caused. In this case, not only the costs of repair work, but also the (market) value of the broken equipment are subject to reimbursement.
Liability is not provided in cases where the premises and property were damaged due to force majeure circumstances (fire, etc.).
Tenant refuses to pay rent
Sloppy payers are usually punished financially. Although this is only feasible if the lease agreement is properly executed - it clearly states the terms, procedure and amount of the monthly rent.
The rental business in the field of commercial real estate will always be profitable and reliable. But if you decide to invest your free funds in this way, you shouldn’t rush off the handle and take whatever comes your way. You need to try to choose a premises in such a location and with such a tenant that the payback period is as short as possible. In Moscow it now varies from 6 to 15 years, the average is 10-12 years, 7-9 years is considered good.
The payback period is the main indicator of the effectiveness of any investment. In the case of commercial real estate and rental business, it is influenced by the following factors: the ratio of the purchase price and the expected rental rate, the size of the premises, its location on the city map and in a specific area, the presence of a tenant at the time of purchase, and finally, the identity of the tenant and your relationship with him relationships. All these factors are interconnected, so choosing a property is a complex, complex task with many inputs and unknowns. To profitably rent out non-residential premises, it is better to seek the help of experienced realtors. But even in this case, you need to be savvy in some issues.
First. Who to rent the premises to?
First of all, you need to determine for yourself who you want to rent out your unpurchased property to. It is easier to negotiate and work with someone you understand, whose specific activities, needs and capabilities you know first-hand. If you understand the shoe trade, it is better to buy a shoe store rather than a grocery store. If you like to sew and cut, look for an object for the atelier. With this approach, it will be much easier for you to find a tenant.
© Photo from loftec.ru
Second. Payback period for rental business
Calculate how many times you will need to receive monthly rent to cover the cost of the purchased property. This indicator in modern times should be in the range from 90 to 120. If it is less, then they are trying to sell you a suspicious pig in a poke, if it is more, you have good bargaining potential. At a very attractive price, you can buy space in a building under construction, but until the end of construction and for an indefinite period of time, you will not see rental payments.
Third. Which footage is faster to hand over?
The larger the room, the more expensive it is. But the main thing is that it is more difficult for him to find a tenant, because these can only be large companies that have special requirements for the location. According to statistics, large premises take several years longer to pay for themselves. If payback time is a priority for you, it is better to purchase several small ones instead of one large object.
Fourth. Location
When choosing a location, you need to focus on the type of business that will be conducted in your premises. For a small grocery store, the ideal location is a densely populated residential area; for production, an industrial zone or suburb; for a cafe, it is desirable to have a business center or educational institution nearby.
Fifth. Ready-made rental business (GAB)
Buying a property with an existing tenant is a good option from all points of view, and income will begin to flow within a month. But the cost of such properties is higher than that of empty ones, and you may encounter fraud on the part of the seller. You need to make sure that the rental rate stated in the contract is consistent, check the stability of the tenant’s business, find out his plans - in case he plans to move soon.
© Photo from mitino.sminex.com
Sixth. Tenant selection
And one last thing. To ensure that the payback period does not extend, you need a good tenant and a business (that is, mutually beneficial) relationship with him. If you have a choice when “settling” a property, it is better to let an experienced, but not large, entrepreneur. The ideal option is the owner of a small but successful store who is going to open another outlet.
Leasing a commercial property is not difficult, and most importantly, profitable. With the right approach and knowledge of the main stages of the process, concluding a deal will not be difficult.
The most important thing is to decide on the price, find a client and correctly draw up the contract.
Let's consider all stages of the transaction.
Determination of cost
When conducting a transaction independently, determining the cost of rent is often not objective.
Every owner wants to get the greatest benefit.
But a price that is too high can scare off potential tenants, and a price that is too low can raise doubts. Typically, owners turn to specialists - a realtor or appraiser - for an assessment of the value.
How to rent out non-residential premises yourself? You can do it without the help of professionals. To determine the price yourself, you need to study similar offers from competitors. This will make it possible to understand the general situation on the commercial real estate market and correctly evaluate your premises.
IMPORTANT: The tenant rents a commercial property for the purpose of generating income, so when assessing the cost, it is important to take into account the approximate possible profit that he can receive.
The price is influenced by factors such as:
After taking these points into account and monitoring competitors’ offers, you can objectively evaluate your property.
Search for a client
Leasing commercial real estate from the owner involves searching for potential tenants.
Before doing this, you need to make a commercial offer or advertisement.
It must indicate in detail all the characteristics of the property: area, floor, location, infrastructure, technical condition and equipment. It is better to focus attention in the ad on the advantages.
At the same time, it is important to indicate the shortcomings of the premises, so that when viewing you do not put yourself in an awkward position and do not frighten off the client.
Let's take a closer look at ways to find potential tenants.
- Search by friends. The easiest way to find a person interested in your proposal is to ask friends and relatives. Often, property owners move in business circles, which means this simplifies the task of quickly renting out their property.
- Placing an ad on specialized Internet resources, for example, Avito. The advantage of this method is that your proposal will be seen by hundreds, or even thousands, of interested parties. In order to find a tenant as soon as possible, you will need to write a good, detailed advertisement, describing all the pros and cons of the premises.
The advertisement must be accompanied by several photographs.
This will make it easier for a potential client to decide whether it is worth considering or not.
- Sending an offer by email. Bars, restaurants, shops, salons and other organizations and establishments are often looking for premises to move or open another location. You can find out the email addresses of business owners who may be interested on the official websites of their companies.
Presentation and signing of the document
Proper presentation of your property is the key to quickly concluding a deal.
When showing the premises, try to tell more information about it, focusing on the advantages and possible profit that the object will bring to the client.
Concluding an agreement is the last, but most important and responsible step in the transaction. A correctly drawn up and executed document will protect the owner from an unscrupulous tenant. What should be stated in it:
- personal information of the tenant and owner;
- address, area and technical specifications;
- registration data;
- deadline;
- the amount of payment and the procedure for its transfer;
IMPORTANT: By law, the owner does not have the right to increase the fee more than once a year. Therefore, the contract must indicate the maximum amount of a possible rent increase and the period during which the tenant will be notified about this.
It is important in the document to describe in detail the rights and obligations of the parties and indicate the nature of liability for violations of each clause. It would be useful to supplement the agreement with an inventory of the property available on the premises. After termination of the contract, the owner will be able to receive monetary compensation if the furniture or equipment was damaged by the tenant.
The fastest ways to rent out non-residential premises
How to quickly rent out commercial real estate?
For those who do not want to spend personal time searching for clients, negotiations and showings, it is better to contact a realtor.
He will evaluate the property, set the correct market value, take attractive photographs, draw up a competent ad and will present your property himself.
However, even working with agents has its own nuances. As a rule, realtors work for a commission from the amount of the rental or sale of real estate.
The fee, in the form of a percentage, is usually taken from the applicants, not the owners.
However, not every applicant will be ready to cooperate with an agent who will have to pay money.
Therefore, if the owner urgently needs to find a tenant, he can pay the commission himself. This is often practiced if the owner has many properties or wants to rent out luxury real estate.
The money paid to the agent will not only go into his pocket, but also for necessary expenses - photos, video presentations, advertising, etc.
Another quick way to rent out a non-residential building or office is to reduce the cost. At the same time, it is not necessary to rent it out for next to nothing; it is enough to reduce the payment by 10%. Then your offer will be competitive.
Rental periods
The validity period of a lease agreement for non-residential premises is an important point. It comes in three types.
According to the Civil Code of the Russian Federation, Article 610, paragraph 2., if the contract does not specify a period, then it is considered concluded for an indefinite period. In this case, each party has the right to terminate it at any time, giving three months’ notice of its decision.
A short-term contract is concluded for a period of no more than a year. How to extend a lease agreement for non-residential premises? The extension occurs automatically for an indefinite period if both parties are satisfied with everything.
In this case, a re-conclusion of the agreement is not required. In some cases, the owner may insist on a new document to change the terms or payment. This is only possible with the consent of the tenant.
A long-term agreement is subject to registration with the Federal Reserve System. The extension of such a lease agreement for non-residential premises occurs in the same way as a short-term one - automatically, with the same conditions, rights and obligations of the parties, or a new document is concluded with changed requirements.
Early termination of a tenancy agreement for a certain period is possible both on the part of the owner and on the part of the tenant.
Such issues are resolved in court or by mutual agreement of both persons.
Knowing the important nuances and opportunities when leasing commercial real estate will help you conclude a profitable and safe deal that brings regular passive income.
Leasing commercial real estate is one of the most profitable types of business and is almost always in demand. Many small firms and beginning entrepreneurs are looking for office space to house themselves and organize their business. Their desire to buy a roof over their head, and for relatively little money, allows them to receive a constant income from renting out space. In addition to small entrepreneurs, often the premises can easily be rented out for small shops, where former owners of small kiosks and trading places in industrial markets are increasingly forced to leave.
A striking example of the success of the commercial real estate rental business is the numerous office buildings filled to capacity with small firms.
The attractiveness of this direction also lies in the fact that its organization usually requires only initial investments, and all ongoing costs can be passed on to customers. Naturally, to create such a business, you must have a suitable property.
For the reliability of the enterprise, it is advisable to purchase such an object as a property so as not to depend on the whim of its owner.
However, if there is a lack of funds, you can rent a building, subject to the right to sublease its space. Often, for the owners of a building, renting it out entirely is more profitable than painstakingly searching for many small tenants and formalizing relations with them. This is all true, but still, a decrease in the share of profit significantly affects the overall profitability of the project, so purchasing a building as a property is always a priority compared to renting, and carries fewer risks for the entrepreneur.
It is absolutely not necessary to choose real estate in the city center, where their cost exceeds all imaginable limits.
It is often much more profitable to buy a building or premises on the outskirts of the city or somewhere in a residential area, which will require a significantly lower level of investment.
The only important condition when selecting real estate is the availability of public transport stops nearby.
A good option for purchasing such an object are old abandoned buildings of bankrupt industrial enterprises, offices of shopping centers. The poorer the technical condition of a building, the cheaper it can be purchased, which is what many entrepreneurs who make money by renting out commercial real estate take advantage of. On the other hand, if there are sufficient funds, sometimes it is easier to erect a new building, planning in advance its space for renting out.
When renovating an old premises or equipping a new one, it is necessary to take into account the specifics of renting out commercial real estate.
Since the premises of the office building will be rented to different tenants, it is necessary to provide for separate communications and the possibility of disconnecting any room from heating and electricity in order to avoid unnecessary costs for empty space. In addition, it is advisable to pre-design common areas, toilets, eating areas, and locations for shared office equipment. This will create comfortable working conditions for small businesses and increase the attractiveness of real estate. As a rule, tenants do not have any special requirements for the finishing of premises, so repairs and finishing can be done using cheap building materials. This reduces the amount of investment required.
Particular attention must be paid to connecting modern communications, especially high-speed Internet, as well as organizing wi-fi.
Moreover, among the tenants it is beneficial to have an accounting firm, as well as a company offering office services: photocopying, printing texts, and so on. This makes it possible to provide tenants with the necessary office services and fully fill all the premises for rent. To attract clients, you can also use common areas, the lobby of an office building, allowing tenants’ advertising products to be placed in them, installing special advertising structures for this purpose.
An excellent addition, from the point of view of technical equipment, is also the connection of a mini-PBX and the provision of city telephone numbers to tenants, which will help secure permanent tenants in the allocated places.
When organizing a business for renting out office real estate, it is necessary to pay special attention to the legally correct execution of contracts and the possibility of recovering damages from unscrupulous tenants. The efficiency of leasing office real estate is confirmed by experts who estimate the growth of rental rates by approximately 10% per year. Experience shows that it is possible to recoup investments in the creation of an office real estate center in 2-3 years.
Naturally, for the proper organization of a business it is necessary, which can be ordered on our website.
Or a commercial offer. It is necessary to characterize your property in detail: indicate the size, number of floors, area, describe the technical condition and equipment, infrastructure, while the emphasis, of course, should be placed on its advantages, but the disadvantages should also be noted.
The most effective ways to find tenants are as follows:
- Placing advertisements on Internet resources(specialized) is a very popular and effective advertising channel. You should definitely add photos of the property.
- Search by your friends- a very simple method, but often works faster than others, since the social circle of entrepreneurs implies the intersection of interests in the business sphere.
- Sending a commercial offer by email– quite often establishments such as restaurants, cafes, bars, shops, salons and others select premises to open another outlet or to move. Since usually the email address of business owners is indicated on the official website of their company, it is not at all difficult to make a specific targeted mailing.
- Cooperation with a real estate agency- a very good way, because realtors have greater advertising opportunities. In addition, they will be involved in concluding the deal in the future.
What to pay attention to?
Pricing
First you need to familiarize yourself with the commercial real estate database, evaluate the market, and compare prices. However, you need to understand that when concluding real transactions, the amounts are usually slightly reduced.
Competitive advantages
It is quite possible to speed up the terms of leasing commercial real estate by changing the quality characteristics of the premises. Various options are possible:
Also, the advantage will be the reliability of the owner and transparency, that is, a long-term direct contract including VAT, a non-cash form of payment, the ability to take into account not only all amounts under the contract, but also operating payments for tax purposes.
Bonuses and preferences
Typically, commercial real estate owners prefer not to advertise the possibility of providing various bonuses and discounts. Everything is decided on an individual basis, for example, if the company cannot decide to rent premises, you can offer some bonuses. They can also become just the decisive factor for making a positive decision. You can learn more about the legal aspects and benefits of renting from the owner.
Ways to find the target audience and which one is more profitable
Search methods can be done independently or with the help of real estate agencies.
On one's own
When searching for tenants on your own, of course, a lot of time will be spent, even if the contract is drawn up perfectly. In this regard, it is more profitable to turn to professionals (realtors).
As for the price, it is more profitable to search on your own; the costs are naturally lower. The risks in this case may be:
- It can be difficult for a non-professional to properly assess a premises and identify its strengths and weaknesses. And the cost of rent depends on this.
- It is possible to draw up a commercial proposal taking into account not all important nuances.
When contacting realtors, you can do other things and entrust the search to professionals.
With the help of a realtor
Precious time is saved significantly, since realtors have their own established bases and advertising methods. Their services, of course, will need to be paid; usually the amount is set within the commission from the delivery of real estate.
To avoid risks, You need to conclude a cooperation agreement with the realtor and pay attention to the nuances:
- Realtors always include a clause in the contract that the owner cannot hand over his property on his own, which means that the realtor will receive a remuneration in any case.
- You cannot sign an agreement until it is verified that the realtor acts as a legal entity and is registered in the Unified State Register of Legal Entities.
Who to give preference to?
When choosing tenants, preference should be given to legal entities or individual entrepreneurs, these are the most reliable categories; they usually rent not the first premises when expanding their business.
Renting premises to individuals is unsafe, as they can refuse to pay rent, declaring that there is no money, or simply disappear.
Possible risks
Of course, every owner of commercial real estate is worried about its safety and condition, because the goal of renting out is to make a profit. The main risks for landlords can be identified:
- Inappropriate use of premises. For example, the tenant indicated in the contract that the premises would be used as a warehouse, but in fact a store was opened.
- Damage to property, that is, equipment may break down, repairs to the premises may be damaged, etc.
- Tenant's refusal to pay rent.
We talked in more detail about how to rent commercial real estate so as not to get into trouble in.
How to submit?
When leasing commercial real estate, it is very It is important to correctly prepare all the necessary documentation:
- make a commercial proposal;
- prepare a lease agreement, in which it is necessary to specify in detail all the terms of the transaction for both parties;
- draw up an act of acceptance and transfer of premises for rent.
A commercial proposal, at its core, is a dialogue with a potential tenant, so when drawing it up, you need to try to imagine yourself in his place. The result should be a presentation of information that would definitely attract people and no longer want to look for another option.
There are offers:
- personalized, that is, targeted;
- not personalized, that is, addressed to everyone.
When compiling it, it is most convenient to adhere to the following structure:
- Title.
- The essence of the proposal, here you need to indicate the purpose of the premises being rented: office, industrial, warehouse or retail.
- The exact address of the object.
- Main properties and characteristics: area, Internet and telephone availability, alarm system, parking, etc.
- The terms of cooperation are indicated: the cost of rent and what is included in it, additional services and additional conditions.
- The advantages of this proposal are possible: high traffic, the presence of well-known companies among the tenants or the proximity of transport hubs.
- Contact details.
Attention! Attach also photographs of the exterior of the building, a view from the inside and a photo of the entrance lobby.
Drawing up and concluding a contract
Article 609 of the Civil Code of the Russian Federation. Form and state registration of the lease agreement
- A lease agreement for a period of more than a year, and if at least one of the parties to the agreement is a legal entity, regardless of the term, must be concluded in writing.
- A real estate lease agreement is subject to state registration, unless otherwise provided by law.
- A property lease agreement providing for the subsequent transfer of ownership of this property to the lessee (