Historically, commercial properties have provided investors with attractive returns with limited risk. Unlike stocks and bonds, real estate is a scarce resource that can appreciate over time if managed properly. However, it takes a trained mortgage advisor, realtor, and property manager to deliver a successful result. With a dedicated team behind you, you could get the following benefits:
Consistent Cash Flow
When managed right, a commercial property can provide stable cash flow in the form of rental income. Finding quality tenants and working on lease deals that create consistent income is one of the best ways investors can earn money. However, not all investors are experienced in marketing, performing tenant screenings and negotiating a lease agreement to their benefit. Bad mistakes equal vacancy and lost income. That’s why you need a property manager who knows how to reduce turnover, find coveted tenants and draft up lease terms that will benefit you.
Creating Upside in Value
A property manager’s job is to find ways to improve the building through CapEx projects that will create more upside in value. This can include updating the roof, enhancing cosmetic featuring, improving energy efficiency, adding new amenities, and retrofitting the building with new technology. It’s also a PMs job to properly maintain the property so that it remains in good condition. The better shape the property is in, the more in demand it will have and the more valuable it will be.
Finding Sources Of Value
There are also several things you can do to enhance the value and get the most out of your investment. To add value over time, you’ll need to put in place rent escalations in the lease agreements and offer shorter renewal options – 5 years instead of 10, which bases the rent increase on market conditions. You can also use triple net leases when possible, which passes on the expenses of the property, including taxes, building insurance and maintenance, to the tenant which can save you a lot of money each year. Lastly, building managers find ways to decrease expenses such as your monthly utility bills or by switching to more affordable contractors, to name a few.
Leveraging Your Property
Another way to maximize your ROI is to leverage the property to your advantage. In most cases, the least possible amount of personal investment in a deal means the larger the total return will be. When you borrow $1,000,000 on a property at 4% interest amortized over 25 years, the income covers the loan and interest, and returns money to you on top. The personal money that is left in the bank can be used to purchase another asset, adding to your wealth. But for this to happen, the right type of leverage deal needs to be set up – that’s where a mortgage broker comes into play.
Commercial properties are worth the investment when you have a dedicated team that uses the best strategies to make your property more valuable. If you need a mortgage team behind you to help get the right financing, contact us at the Mortgage Advisors.