April 15th 2025
In our money machine seminars and as investors, the bulk of our attention has been focused on residential real estate investment. It’s the easiest to acquire, the easiest to finance and generally speaking the easiest to rent out and keep rented. After all, regardless of the economy we find ourselves in, people always need a roof over their heads. So, while in tough economic times, when many businesses are struggling, you might see a lot of ‘for lease’ signs on strip plazas and retail outlets, that’s not typically the case with houses and apartment units.
But that’s not to say you shouldn’t have some commercial properties in your investment portfolio. You absolutely should. Especially as your portfolio and your expertise grows.
There are a lot of advantages to commercial rentals as compared to residential. For one thing, governing legislation is much more oppressive for residential rentals under the Residential Tenancies Act. A piece of legislation which greatly restricts a landlord’s rights and freedoms. Under the Act, tenants do not have to move out at the end of the lease if they do not wish to. And if they choose to stay, the landlord is limited as to how much he can raise the rent. He is limited to one increase no more than once a year, and at an annual rate set by the government and usually for less than the C.O.L. And should the tenant become a problem, either by non-payment of rent or bad behaviour, it’s an extremely long and frustrating process getting them evicted.
All these issues are not concerns at all with commercial property which is governed by a much fairer and more balanced piece of legislation. The Commercial Tenancies Act. But I think one of the biggest advantages a commercial landlord has is that most commercial 
leases tend to be what we call triple net. What we mean by that is that most, if not all, issues and expenses faced by the residential landlord in a residential lease are off loaded to the tenant under a triple net commercial lease. The calls you get from a residential tenant because a tap drips, or because a door is off it’s track, or the oven isn’t functioning, you don’t get from your commercial tenant. He realizes these things are his problems, not yours. So, he doesn’t call you, he calls a tradesman or repairman.
And, of course, the related expenses are not yours either. They belong to the tenant. The idea being that while with residential investments, your gross rent is greatly reduced by expenses, with commercial tenancies, they are not. Repair and maintenance, insurance and even taxes that cut into the residential landlord’s bottom line are simply passed on to the tenant in commercial situations. Lisen to the typical clause as it appears in a commercial lease”
So that means if we compare the situation of two landlords, one residential and one commercial, each with a unit to rent, we see very significant number differences emerging.
Let’s suppose the residential landlord has a house he rents out for $2,800/month. Out of that monthly income, he must pay taxes and insurance. He’s got to cover maintenance and repairs. In some cases, he may have some utilities to cover. Not so with the commercial landlord. Everything from taxes to insurance, repairs and maintenance is additional to the rent and charged back to the tenant. What he gets – $2,800, he keeps.
Sounds nice? It is. But there are some grey area expenses we need to consider even in commercial leases, and we’ll have a look at them in the next issue.