Investing in commercial properties is one of the best niches for investors wanting to generate more income. Apart from the massive cash flow, commercial properties also offer greater opportunities for diversifying your portfolio. On top of rental spaces, you can also include other asset classes such as storage or warehouse facilities and hotels in the mix.
Commercial real estate also gains value over time, especially when demand for commercial spaces increases. There are lots of ways you can do to make these assets appreciate faster so you can profit from selling them later on.
If you are looking to purchase commercial properties this year, here are a few ideas to help you increase their value.
- Consider a rent increase
The best thing about owning a real estate investment property is the fact that you can raise the rent at any given time. However, deciding whether to increase the rent will still depend on several factors, including the average local rent, the demand for commercial space, and the amenities that are available within and around the property.
The local real estate market has a major impact on how far your rent increase will go. You need to check local market forecasts. Raising the rent early can cause you to lose potential and current tenants. Doing a fair market rent analysis using tools like Zillow can help you stay competitive without decreasing your profit margins.
Aside from the average local rent, you should also consider the demand for commercial space in your location. When there’s high demand for commercial real estate, you could take this as an opportunity to raise the rent. On the other, a drop in demand should cause you to think twice before considering a raise.
Another factor for increasing the average rent is the availability of amenities or features that exist around the neighborhood. If the commercial property is located in a high-end community complete with lots of green spaces, cafes, and shopping centers, then you have all the right reasons to set a high rate.
- Fill up those vacancies
Any commercial development will produce income when tenants pay rent each month. Regardless of how many spaces are available on the property, you need to make sure that your vacancy rate remains low throughout.
If there are more vacancies than occupied units, you will have to pay extra for maintenance. The property also loses a part of its earning potential, so you need to make sure it produces income by getting more commercial tenants.
To do that, consider spending time and resources building networks with local real estate professionals such as a Rittenhouse Square Commercial Realtor in Philadelphia who can help you find potential tenants. You can also have a leasing agent to help get the property listed on platforms like LoopNet or CREXi or promote it on social media.
Taking the time to raise the vacancy rate can help increase the earning potential of your commercial property and raise its total value over time. You just need to consider the strategies that can improve the property’s online presence at a lower cost.
- Consider value-added improvements
No matter the type of real estate asset you own, adding improvements to the property is guaranteed to attract more tenants and increase the property’s longevity. There are several improvements to consider ranging from a simple repainting of the exterior to making repairs and upgrades to the water, energy, and HVAC systems.
If your goal is to raise the property’s value and increase the cash flow, consider enhancing the security system by placing surveillance cameras and adding shutters. These are particularly useful to storefront tenants. You can also include other enhancements such as high-speed internet and a co-working space that caters to professionals looking for a home office.
Another way you can raise the value and attract more tenants is by adding other features such as storage facilities and parking areas. You can also build more space and install larger windows to allow for more natural light.
Commercial tenants will also appreciate it if the property comes with a backup generator as well as energy-saving lights. These are guaranteed to appeal to business owners that want to be in places that align with their advocacies. With the right improvements, you should be able to get a high rate of return as the property becomes even more attractive to business owners and other types of tenants.
- Decrease your operating expenses
A major factor that determines a commercial property's value is the cost of maintaining it. This cost includes expenses for repairs, routine maintenance, and recurring utility costs such as energy and water.
For this, you only have to review the property’s cost statement and look at areas that get the bulk of your monthly operating costs. For instance, if you notice that you are paying more for energy, you might as well consider swapping the lights with LED bulbs or adding insulation to the building. Energy-saving solutions like these may not seem too significant but they can produce massive savings in the long run.
It’s also important to do routine checkups. Checking the property for defects and other issues can help you identify these problems before they get worse. Through recurring maintenance, you can extend the life of the property and avoid making costly repairs.
- Get a property manager for the job
Improving the value of a commercial property takes a great deal of time and resources to pull off. In many cases, you may need to be hands-on in dealing with repairs as well as attracting and managing tenants.
If you want to make the job easier for yourself, consider hiring a commercial property manager to handle these tasks. With a property manager, you don’t have to deal with the tedious and time-consuming task of maintaining your assets so they will sell at a higher rate of return.
A commercial property manager can also help you identify improvements and other strategies that can help increase the resale value of the property, especially if you are planning to sell the property later on.
If you are planning to invest in a commercial property, consider these tips to get the most out of your purchase.