So you’re starting out your property management career, but don’t quite know which industry segment is best for you. Residential property management or commercial property management? The two share some similar aspects, but there are key distinctions that will leave you going down a different career path. Let’s define each type of real estate career first, then talk about what each will require from you as the property manager.
What Is Residential Property Management?
From the name, you can assume what this is referring to. You’ll be responsible for managing residential real estate property. This is a housing property that can accommodate from 1 to 4 separate tenant groups. So single-family homes, condos, co-ops, and multi-family homes (less than 5 units) are considered residential real estate.
What Is Commercial Property Management?
Commercial real estate refers to commercial use properties- think office space, retail shops, and other business-related uses of land and property. Rental property used for housing 5 or more tenant groups is also referred to as commercial real estate. When becoming a property manager of commercial real estate, you need to be able to differentiate between these two property types and their required management services in order to choose the right career for you.
Related: How to Become a Property Manager in 5 Steps
The Key Differences Between Them
When choosing between residential property management and commercial property management, you need to go through the different factors involved with each and see what suits you best. Although most beginner property managers start out with residential property management because it’s viewed as simpler, that isn’t the case for everyone. Here’s what you need to consider when choosing the right one for you:
Property Management Clients and Tenants
Because the use of the income property differs, the type of client and tenant for each property type also differs.
Residential real estate requires rental property management; while landlords and rental tenants aren’t always the easiest to handle, as a residential property manager, you need to work as the middle man between both the landlord/property owner and the tenants to make sure their needs are met.
As a commercial property manager, you’ll be dealing with a wide range of tenants, depending on the business (restaurants, shopping malls, medical centers, apartment complexes, etc.). It’s important you understand the business taking place in the commercial property you’re managing, so you know the appropriate services to provide.
While the clients and tenants for each differ, ultimately as a property manager, you need to understand the space you’re responsible for so that you can manage the tenants while also advising the property owner in an effective way.
Tenant Payments
Before starting a residential or commercial property management company, take a look at the different payments your tenants will be making to you. The tenants of both commercial and residential real estate property have some fees to pay. Residential tenants obviously have the main expense of paying rent. But in addition to this, they also need to pay for utilities like electricity and water. Typically as a residential property manager, you’ll be collecting around 8-12 percent of that property’s monthly rental revenue. So it’s important that you take into consideration the residential rental rates in your real estate market of operation.
Commercial tenants also have the main rental payment, but there are some other big expenses. Known as the “three nets,” these expenses are property taxes, commercial landlord insurance, and maintenance fees. Traditionally, in commercial property management, you’ll collect around 4-12 percent of the base rental fee, but this can differ based on the type of commercial lease.
Legislation and Leases
There is different governance for different property types. These are things which you need to consider when choosing between residential property management and commercial property management.
A residential property management company is governed by:
- Residential Tenancies Act 1986 (RTA)
- The Building Act 2004
- The Building Code
- Housing Improvements Regulations 1947
- Residential Tenancies (Healthy Homes Standards) Regulations 2019
Property managers are responsible for making sure that the rental property is up to code. You also need to have lawful leases. Commercial leases tend to be more complicated than residential leases. Rental agreements can be done on a month to month basis, or annually, and are easily renewable.
Because commercial tenants typically have claim over the rental property during their tenancy, there’s different governance for this type of property. A commercial property management company follows the Property Law Act 2007 which governs the relationship between the property owner and tenant. Commercial leases often require professional legal supervision and are based on a Deed of Lease. The leases can be long and usually have difficult extensions to choose from. A commercial tenant usually occupies the real estate property for a much longer time frame than a residential tenant. So the commercial lease can be covering up to 30 years of tenancy. Some examples of commercial leases you’ll need to figure out are triple net, modified net, gross lease, and percentage lease.
Related: How to Start a Property Management Company: 7 Steps
On-Site Management
While residential property management requires you to always be available to answer any tenant matter, you don’t always have to be on-site, just easy to reach. When it comes to commercial property management, however, this isn’t always true. In some US states, it’s required by law for the property manager of a large office center or shopping mall to be located on the property site. In this case, it’s also best to have some sort of system or a property management website which is easily accessible by the property owners and tenants so that they can contact you.
Whichever Career Path You Choose, Use Property Management Software
Which sounds better to you? Residential property management or commercial property management? Whichever you choose, we’d like to leave you with one last tip: use modern tools and software. Using excel sheets might not be able to cut it when it comes to running a property management company in 2019. There is a wide range of options to choose from when it comes to property management tools.
If you’re planning on starting a residential property management company, we’ve got a great platform for you to use. Mashboard provides residential property managers with unique management tools to give them an edge over the competition. Here’s a quick summary of what you can do when you sign up now:
- Have access to the data you need on property owners
- Use data and analytics to instantly qualify leads
- Use the Mashvisor Property Marketplace to easily find or list off-market properties for your clients
- Identify the right investment property for your client and share analysis reports with them
With this tool, you’ll be able to easily provide extra services to your clients, like identifying their next rental property (for you to manage!) without any real effort on your part. If you’d like to learn more about how property managers can use the Mashboard, click here.
Related: 10 Tips to Succeed as a Residential Property Manager