Minimizing risk in commercial real estate investments

Live/work spaces have become increasingly popular in recent years – particularly in cities like Los Angeles where real estate prices are among the highest in the country. However, it’s not really a new concept. People have lived above their stores, bars, restaurants and other businesses for centuries. Zoning laws, however, are much stricter than they used to be. Cities have zoning laws in part to protect property values. Many areas are zoned strictly for residential or commercial use. They can also be zoned as historic areas or for industrial or agricultural use. Some do allow a combination of residential and commercial use, with certain limits, like what kind of business can be conducted. These are known as mixed-used zones. Can you let a tenant live in a space they rent for their business? What if you are renting out a commercial property and your renter asks to live there? They’ll pay you extra, and you’ll have someone there during the night, so this might actually be a deterrent to crime. But is that legal? It depends. It’s crucial to check the zoning ordinances for the area. If it’s zoned only for commercial property, you may be able to get a permit. However, you’ll need to check with your insurance company to determine whether your policy covers something that might go wrong. What happens if your tenant leaves something on the stove and starts a fire or lets the bathtub overflow? You might not be covered for the damage. If you go ahead and let a tenant live in a commercial space without getting the proper authorization, you risk fines if the authorities find out. Further, if your tenant is injured or killed by an intruder in the middle of the night, you could face civil and/or criminal liability if the space wasn’t meant for someone to live in. Whether you want to live in a commercial property you own or you’re considering letting a commercial tenant use their space to live and work in, it’s crucial to determine the zoning restrictions for your area. Trying to get around them can only lead to problems. If you are facing legal issues involving the misuse of commercial property for residential purposes (or vice versa), it’s important to seek experienced guidance.

An article published on The Business Journals’ L.A. Biz website just this week highlighted how demand for industrial real estate has recently reached all-time highest levels here in Los Angeles. That same report chronicles how vacancy rates have hit the lowest rates they’ve ever been. The trend in L.A.’s real estate market may have you wondering whether you should sell your property off to a buyer that’s made the highest offer on your commercial property or capitalize on the low vacancies and high demand, and lease it out. There are a few different factors that you’ll want to weigh as you decide which option is ideal. Do you hold or sell your commercial real estate? In a situation like the one described on L.A. Biz, you’re aware that the high demand and low vacancy rates mean that you can command higher-than-average monthly rent. You can likely negotiate more terms in your favor as well. Continuing to lease your property may be ideal if you believe that your property will retain a similar value to what it is now, or it still has room to increase. If you have any inkling that the value may drop, then you may opt to let it go now when you can command a top-level offer. One factor that may render such a decision less than straightforward is if your commercial or industrial space is in a new development or emerging market. You might be able to command a much higher sales price at a later phase in the development or as it becomes more popular. On the flip side, if taking the risk of the property value declining as you watch your rent trickle in from the lease makes you uncomfortable, then there may be no time like now to sell off your space. You may end up with just as much if not more (in a far shorter time) by putting it up for sale, especially if an unexpected costly repair were to be needed if you were a landlord. Entering into a short-term lease while you closely monitor the market is also an option. No matter what choice you make, it’s imperative that you closely analyze any contract you sign. It’s important to familiarize yourself with procedural or tax obligations that accompany your transaction as well.

Owning a rental property is a great investment. However, it is not unusual for a landlord to get into a dispute with their tenant. A tenant may feel the landlord is too bossy or strict, while the landlord may discover that the tenant is anything but what they hoped they would be. Multiple factors can contribute to disputes between landlords and their tenants. These can range from violations of the terms of the lease contract to the use of the rental property for unintended purposes. Here are some of the common landlord-tenant disputes that you need to look out for. Rent payment issues Rent non-payment or delay is by far the most common trigger of landlord-tenant disagreements. Rent-related disputes can be caused by several factors, such as: When the tenant falls behind on rent or does not pay at all When the tenant starts sending bad checks or lying about rent payment When the landlord fails to follow through with routine repairs and maintenance resulting in the tenant withholding rent Tip: To help address the issue of rent payment, the landlord can clarify when the rent should be due and what is considered late payment in the lease contract. The tenant, on the other hand, has the duty to report any repair issues or potential emergency situations that may hinder them from paying rent on time. Habitability issues Legally, the tenant has the right to a habitable premise. This means that the landlord is obligated to keep the rental unit clean and habitable, along with timely repair of defective conditions and complying with health and safety codes for rental facilities. Habitability issues can become an item of conflict if the landlord believes their rental unit is habitable while the tenant feels otherwise. It is important that both parties are aware of the HUD guide on premise habitability. Every landlord dreams of a trouble-free tenant who pays their rent on time and lives at peace with their neighbors. Every tenant, on the other hand, hopes for an understanding landlord who honors their end of the bargain and keeps the premise in a habitable condition. Understanding the common causes of landlord-tenant disputes can help both parties get into a contractual agreement that works for everyone.