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TRUMP UNIVERSITY WEALTH BUILDING 101

offer lower prices and higher income yields than houses, condominiums,
and small apartment buildings. If you shop www.loopnet.com , you’ll fi nd
thousands of office and retail properties priced at less than $500,000. Such

properties often display unleveraged income yields of 5 percent to 8 percent.

Property Management

Depending on the type of property and the terms of your leases (see later
discussion), you may not need a property management company, or a leasing
agent.

Say you buy a medical office condominium that is leased to a doctor for a

remaining term of five years. This doctor has three five-year renewal options.
If she chooses not to relocate, you enjoy long-term, virtually carefree invest-
ment. The condo association maintains the building common areas, and the
doctor accepts maintenance responsibility for the interior of her offi ces.
The Upsides and Downsides

One strong upside of commercial properties is that, in most, but not all, situ-
ations, your tenants operate businesses or professional practices. They estab-
lish themselves in a set location and, as a result, typically move infrequently.
On the downside, when you do get a commercial vacancy, that space can
remain vacant for months, and if you own a specialized property, or a prop-
erty in an inferior location, a vacancy can last for years.
When you buy a commercial property with expiring leases on the near
horizon, verify the marketability of the units (price and time on market). Do
not naively assume that you or your leasing agent can quickly rent those
vacancies.

Commercial Leases Create (or Destroy) Value

Generally tenants who rent residential units sign leases of one year or less. If
a buyer doesn’t like the previous property owner’s lease, or tenants, he can
write his own lease and operating policies and put them into practice within a
short time.
With commercial properties, you probably face a different situation.
Many commercial leases run for 3, 5, 10 years, or longer. Plus, commercial
tenants often enjoy the right to renew for multiple periods (e.g., an original
five-year lease with three- to five-year renewal options).

Just as important, commercial leases can differ greatly in their terms.

Even various tenants who rent within the same office building or shopping

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