Purchasing a commercial property and renting it out to a local business owner can be a smart investment. However, just as with rental properties, you have to be careful about who you allow to rent your properties. These are a few red flags that you should watch out for if you want to run a lucrative and less stressful business.

1. New or Failing Businesses

You probably wouldn't let a residential tenant rent an apartment or home if he or she wasn't making any money, so why would you rent to a commercial tenants whose business is not bringing in any cash? If a business is brand new, it could be a while before the owner starts turning a profit. Likewise, if a business has been struggling, there is a chance that it will still struggle at its new location, too. Although you don't have to turn these potential tenants away, you should make sure that they have the finances to pay the rent if their business isn't doing well.

2. Unclear Explanation of What the Business Does

You should ask the tenant about the type of business that he or she operates and what products or services the business has to offer. If you get an unclear answer or aren't quite sure about what you're being told, you should consider asking more questions or choosing another tenant. You don't want a commercial tenant to sign a lease and then operate a high-risk business or another business that you don't want in your space. The type of business that is operated in your commercial property can set the stage for your building's reputation in the future. Plus, certain businesses can be more likely to attract vandalism, destruction of property and other issues that you probably do not want to deal with.

3. Business That Doesn't Suit the Location Well

Consider how the tenant's business will fit in among the other businesses in the area. If you don't think the business will do well in the area, or if you think it might affect the reputation of the area, you may want to proceed with caution. A business that does not do well in your commercial property can result in late rent payments and other financial losses, for example, and a business that might affect the area's reputation could even drive property values down.

As you can see, there are a few red flags that you should watch out for when searching for commercial tenants. Luckily, proceeding with caution in these three situations can help you choose commercial tenants that will be right for your property. To learn more, visit a website like http://sgcityrealestate.com/.