Tim Brandle

Purchasing a property as a rental can prove to be one of the most important assets of an investor's portfolio, but what kind of property is best for you? Most investors will tell you commercial properties are the best real estate to invest in because of their unique advantages. This is true, but there are some disadvantages as well that might deter some investors from commercial property.

What are the advantages of a commercial property versus a residential or an association? One aspect is the unique lease terms. These terms set commercial properties apart from the rest of the real estate properties. Typically, a normal rental lease is anywhere from three to five years minimum. Because the tenants are tied in for so long, a high amount of income is generated. This also implies that tenant turnover is relatively low. A lease can include an escalator clause, which states that the landlord can raise rent in the middle of a lease agreement in the event of higher inflation or other economic conditions stated in the clause. The lease can also include a portion stating the tenant must share a pro-rata share of certain expenses. This may include some maintenance expenses and property taxes. With that said, there is much less maintenance work involved for the landlord with commercial compared to a residential property.

There are also a few disadvantages. For starters, it can be much more difficult find tenants. It is not uncommon for commercial properties to stay vacant for extended periods of time. Once a tenant has been found and basic terms of the lease have been agreed upon, attorneys from both parties review and negotiate the language of the contract. This process can be time consuming and costly. Financing can prove to be quite a challenge as well. Unfortunately, most lenders are stricter on their requirements for a commercial loan because of the high volume of capital needed. Some lenders require evidence of a sufficient projected cash flow and debt coverage ratio to prove the property will be able to generate enough return to pay back the loan.

There is no right answer to which type of real estate you should invest in. It is all a matter of what resources are available to you and your priorities for your real estate investment. Do your research and find the best fit for you.

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If a landlord wants to avoid lawsuits, which is every landlord, it is vital they know a bit of state law. There is a mountain of potential liabilities in most states that some landlords are not aware of. A landlord that has not taken the appropriate steps to comply with state regulations could jeopardize their business, their tenants, and the surrounding neighbors. Every landlord needs to recognize their responsibilities and take preventative actions to potentially dangerous situations.

Tenant dealing illegal drugs

Did you know that if one of your tenants is involved in any sort of criminal activity while in your property, you could be held responsible? It's true. The majority of the time, criminal acts involve a tenant dealing drugs out of the house. If anyone is injured due to a tenant's misconduct, the landlord could be sued for managing a rental property that constitutes a public nuisance and threatens public safety and morals. The landlord could also be fined and be charged with a criminal offense if the landlord knowingly let the activities go on. On top of being sued, fined, and penalized, the value of your rental property will sink like a rock. These consequences are fairly consistent throughout most states. Keep in mind though, some states have additional laws that could be devastating to your property. Colorado just passed a law stating that if methamphetamine has been used in a property, it is automatically considered a meth lab. In this case, you would have to pay a haz-mat company to abate the property costing thousands of dollars. In some severe cases, the property may be too heavily contaminated and will be bulldozed to the ground! Make sure you know your state laws! Know every risk and consequence of housing a criminal tenant and take every precautionary measure to avoid such situations.

So how can you keep a drug dealer out of your rental? There are a few tricks you can use to identify and keep out these unwanted criminals. The best deterrent for a drug dealer is not accepting cash payments for rent. Most of the money a drug dealer earns will normally stay out of bank accounts because they want their flow of income to be undetectable. Be suspicious of an unusual amount of traffic coming into and out of the property. State in the rental agreement that drug dealing or criminal activity is prohibited while in the property. Also state that any tenant convicted of criminal acts inside the property will be immediately evicted. The best sources to use if you have any suspicion about the tenant are the neighbors. Ask them if they are aware of any drug dealing taking place in the house. To keep criminals out of your rentals, learn the proper way to screen tenants. For more information on how to screen tenants read ‘How to screen for qualified tenants'.

Tenant injury

The most common way a landlord can be held liable for a tenant injury is if the injury was caused by a maintenance problem on the property that the landlord knew about and neglected to fix. There needs to be sufficient evidence to prove:

•a) The landlord knew about the problem for a period of time

•b) The landlord did not take any sort of action to fix the problem

•c) The problem would not have been overly expensive to fix

•d) The tenant was legitimately injured.

A landlord is also liable if he/she should have known about a problem but was unaware due to lack of routine inspections. For example, if there is some electrical wiring that needs fixing in an old house that the landlord was unaware of and a tenant gets shocked and injured. Because landlords are expected to have routine inspections for problems like electrical wiring, he/she would be liable.

Criminal acts

Landlords are some what responsible for the safety of their tenants; this includes protecting them from outside criminals. The liability mostly depends on the context of the situation. If the property has had a past history of break-ins, assaults, or other criminal acts, there is a higher chance that the landlord would be responsible. Luckily for landlords, there are steps that can be taken to prevent criminal acts of non tenants and avoid liability. First and foremost, make certain your property is within state regulations of home security. Install deadbolt locks on your doors and locks for all windows. If your property is in a dangerous neighborhood, let your tenants know and take some additional precautions. Install sensor house lights or start a community watch in the neighborhood. The more steps a landlord has taken to ensure the safety of the tenants, the less likely they would be liable for any law suit that may arise.

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If you are thinking about buying a foreclosed property to rent to tenants, you MUST read this article. There are so many crucial factors that need careful consideration in order for the owner to actually turn a profit on a foreclosed property. There is no denying how bad the real estate market is right now, anyone who has tried to sell a property or pay a mortgage could tell you that. Interest rates are higher than ever, and so are foreclosures. When people think of foreclosures they usually assume the property is in a bad neighborhood, but that is untrue. Foreclosures are everywhere, from low to middle to high class properties. This is why investors are jumping on the opportunity to buy these properties at below market value, but be warned, some of these properties are made to seem like a better deal than they actually are.

What exactly is a foreclosure? A foreclosure is a property that has been repossessed by a bank or lender because the borrower or owner of the property defaulted on the loan payments. In order for the lender to recover the defaulted amount, the home is repossessed and resold on the open market.

Things to Consider:

Has the property been well maintained by previous owner?

This is very important and should take some thorough investigation. Some home owners who lost their property to foreclosure most likely did not have the funds to keep the property well maintained. If an investor buys a foreclosed property without researching the history of the house and the owner, they could end up having to pay thousands of dollars in repairs. There could be electrical damage, broken pipes, roofing leaks, holes in the walls or doors, broken windows, etc. that adds up very quickly.

Was the property used as a rental property in the past?

If the home was a rental before, there are a few extras the investor needs to consider. Rental properties typically have more wear and tear damage that could add to the investor's expenses. The investor might also have to deal with current tenants. Very rarely do situations come up where the previous tenants are still living in the foreclosed property. Tenants have very little rights with regards to protecting their lease when a property goes into foreclosure. Every state enforces different laws, but the majority of the states follow the "first in time, first in right" rule. This law states that if the mortgage was recorded before the lease was signed, the lease becomes obsolete. However, if the rental agreement was signed before the mortgage was recorded, the renter may have a chance of protecting their lease, or at least delaying the eviction process. In the rare case that a tenant is allowed to stay in the foreclosed property, the home buyer could be faced with some serious problems, especially if the tenants are delinquents. For more information on delinquent tenants and evictions, read How to evict a tenant.

Hire a property manager.

Property managers are professionals in property repair and maintenance. Foreclosures typically require a fair amount of work to be done before actually putting the property on the rental market. For most people, this process can be time consuming and draining! Property managers will also find qualified tenants for the property once it is fixed and looking its best. Hiring a property manger could save you a lot of time and money especially when repairing a foreclosure. To read more articles on property management CLICK HERE.