Investing in commercial real estate is one of the best strategies for building long-term wealth. After you have successfully purchased your first commercial property, your next focus should be on how to ensure your property stands out from the others by increasing its value. Net operating income is what is used to measure the value of commercial real estate property. As the real estate market continues to be more competitive, you need to implement proven improvement strategies that will increase your commercial property value.
In this commercial real estate investment guide, we look at simple yet effective strategies that you can implement to increase your property value and your return on investment.
1. Raising rent
Raising the current rental rates in your commercial real estate property is a very emotive issue and you should tread carefully to avoid losing tenants. First of all conduct, a market survey to find out if your current rental rates are below the market average.
If your current rates are below the average market rate, consider increasing your rent gradually to earn more income from your commercial real estate property. Getting a rent comparable report from a reputable agent/broker is an effective strategy that you can use as a guide to making the right rent increase decision.
2. Optimize your operating expenses by budgeting
Huge operating expenses reduce net operating income. The commercial property value is calculated based on its net operating income. Through proper budgeting, real estate investors can easily optimize their operating expenses.
You can do this by carefully analyzing your current operating expenses to identify the ones that can be optimized and others that you can do away with. Compare the operating expenses of other similar properties in your area to have a better idea of the core expenses and how you can reduce operating costs.
By reducing your commercial real estate property operating expenses, you can record a significant increase in your net income. Higher net income increases your net worth and it’s one of the easiest strategies for increasing your commercial property value.
3. Make property improvements that add value
Not all improvements can add value to your commercial property. To get it right from the start, focus on specific property renovations that improve the tenant’s experience.
These property improvements that increase value can range from modernizing parking areas, painting the interior walls with neutral colors, boosting your curb appeal, fitting your property with modern energy-efficient appliances, and implementing smart home technology.
The easiest way to finance all these property value-adding improvements is by engaging private money lenders.
4. Re-purpose the initial property use
If the commercial property that you have bought is not generating enough profits, another strategy to increase its value is by changing its original intended use. Commercial real estate investors who specialize in fix-and-flip investment strategies can also buy properties that can no longer be used for their old-fashioned original design purpose. They can then add value to them by remodeling them to other new commercial use models that are in line with current market demand.
5. Add essential amenities
Another great way to increase your commercial property value and make it stand out from other comparables in your area is by adding unique amenities that give it more functionality. Commercial real estate investors should always be on the lookout and network extensively so that they can understand the kind of amenities that modern tenants are looking for.
Some of the common amenities that will positively impact your commercial property value include; adding a conference room, gym, concierge, business center, laundry areas, coffee bar, dog washing areas, free WIFI, and automated smart security systems.
6. Let tenants manage all essential utilities
Utilities can form a significant amount of expenses in commercial real estate properties if not well managed. Utilities cost for water, gas, and electricity should be passed to tenants so that they can use these resources prudently.
The easiest way of doing this is by ensuring that each unit in commercial property has its own utility billing meter to measure consumption rates and generate bill amounts. Most tenants also don’t want to live in a property where utilities are rationed. Take advantage of their preference and give them autonomy in managing their own utility bills.
By doing so, tenants will use utilities efficiently and you will be relieved of the burden of utility costs. On the other hand, owners will cut their operating expenses significantly, thus increasing their net operating income.
7. Negotiate for longer lease terms
Longer and more robust leases have a direct correlation with a higher commercial property values. Investors should consider negotiating for longer lease terms with interval rental increase review after several years with all the new tenants. For existing leases, look for legal ways to renegotiate the leases so that they can be long-term and have better rental review terms.
8. A new management team brings new ideas
Bringing in a new management team is a sure way of getting new fresh ideas on how to efficiently manage a commercial real estate property. A new management team with a wealth of experience in commercial property management can be the missing link that is required to turn around your investment and boost profitability. Where there is efficiency, the commercial property is well-managed, and so is the welfare of tenants. This leads to reduced operating expenses which translates to increased property value.
9. Subdivide your land
If you have idle land that is in a prime location, consider taking advantage of adding necessary amenities such as roads and electricity to increase its value. Real estate developers looking for commercial lots will be willing to offer a higher price for land that has been developed compared to just raw land.
By subdividing your land into smaller lots with value-added amenities, you may attract many interested investors and you can maximize this investment opportunity by selling your lots at top dollar when demand is high. When you subdivide your land into sizable commercial lots, you can increase its original value significantly and maximize your return on investments.
If you don’t have enough finances to carry out these much-needed value-addition amenities, contact private lenders for a quick and flexible financing option.
With a well thought-out plan, you can increase your commercial property value. These are just a few strategies that can help boost your commercial property value. The next step is to ensure sufficient financing, and that’s where we come in! Contact us today, and we’ll help you take your real estate investment to the next level!
