As a property owner, learning how to mitigate long-term risk takes some experience, but also common sense. Unexpected occurrences will happen – be prepared, stay calm and remember the fundamentals to prevent a financial misstep.
I am amazed at the number of times a background check is skipped for an incoming tenant. This should be one of the first steps taken with prospective new tenants. Credit checks with banks and suppliers will provide a window into the tenant’s situation, and their financial foundation. A lower score may indicate past debt or missed payments – not always a positive sign for a new tenant.
Also, call their previous landlord for a reference and ask specific questions. Understand why they left the previous location – was the rent too high? Then, compare your rate and make sure it’s a feasible monthly payment for the tenant. Consider if this new location will impact their business negatively. While having a tenant spot filled is often the primary goal, setting up for failure won’t benefit anyone.
Financial background information is all crucial to know, as it provides the property owner and manager insight on how well a business can hold when financial downturn comes into play.
When tough times hit: rent cuts and other considerations
Okay, business was good but market factors and loss of business took its toll. Now, the tenant is coming to you for a break on rent. What to do in this situation? Similar to the first step on background checks, make sure to have detailed information and then evaluate the request.
Consider these factors:
Relationship with tenant: Is this a new tenant or someone who has consistently paid rent for the last 5-10 years? This should play a role in the ultimate decision.
Financial evidence: Ask if the tenant can provide financial statements and tax returns.
Everyone participates: A break from the landlord each time a financial blip hits is not responsible. Ask if the bank is also cutting them a deal and if suppliers are providing a discount in the interim. Is the business owner taking a cut in pay? Considering assistance with rent seems like a fair ask if all these steps have been taken.
At the end of the day, a mortgage has to be paid to the bank. Juggling the relationship with a tenant is a balancing act, but depleting funds for mortgage payments is risky.
Empty Units – open for lease
Having empty space to fill is part of the process in property ownership and management, especially during down times. However, a vacant space doesn’t mean taking the next offer that becomes available. Hold out for the right tenant and lease. This is the time when investing in a talented leasing broker can be worthwhile. They often have a keen sense of the local market and businesses looking to move or expand. Be friendly and build relationships with different brokers to increase options.
Increasingly, pop-up shops are becoming a valid marketing channel for many brands, beyond seasonal store-fronts. “Pop-up retail,” which is the opening of short-term retail spaces, is a growing trend across the U.S. and Canada. Sometimes, “pop-ups” are seasonal and other times fulfill a marketing demand, by creating a short-term unique experience to engage customers. For a business, it can help test a market, product and location.
In the end you need to mind the details, but also look ahead
When a business faces challenges, property owners need to set limits and run a tight ship. Be helpful without hindering your own business and keep an eye on market trends for new opportunities – they always exist, even in down-turns. For every newspapers headline claiming dismal market conditions, it also means there may be other investment prospects available.