Capitalizing in an uncertain market is the key to our success in Creative commercial real…
We left off in the last entry talking about different types of property conditions that lend themselves to the “Forcing Appreciation” strategy.
Properties that have been poorly maintained offer us a tremendous opportunity in the current economic climate. In this scenario we try to focus on strong locations and properties that will need primarily cosmetic and perhaps utility upgrades. We will usually want to avoid properties with major structural problems unless we intend to demolish them all together. This is a guideline however not a hard and fast rule. When we improve the utility, and the cosmetic appearance of a property, we change its perception with in the marketplace. Once we have changed public perception, we can reposition the property and re-tenant with higher quality tenants and improved rental rates. These changes will bring substantial value and cash flow to the project. It is however essential that before we invest in these changes that we verify that there is demand within the marketplace.
Properties that suffer from poor management will usually have elements of many of the categories (Under maintained, under performing, under utilized and under marketed) Properties that are under managed will also frequently contain substandard tenants, either with respect to credit worthiness or if dealing in retail a poor tenant mix. Keep in mind that under-managed properties will also come with a much less reliable historic operating statement. It is therefore critically important that your due diligence take on a much higher level of scrutiny.
We will be able to make gains in many areas with respect to turning a poorly managed property around. These properties can be some of the easiest to turn and the biggest profit makers. A word of caution. Many properties in rough areas suffer from poor management. Keep in mind that in crime ridden areas the existence of poor management may be a related condition caused by the challenges that simply could not be overcome. If you feel you have the skills to handle this type of investment challenge then you can be well paid for doing so, and if you get good at it, there is no shortage of opportunities, however remember that if you are not successful you may be stuck with the property for a very long time.
Properties which are under marketed will have vacancy of course, but may also have a less than ideal tenant mix. Marketing of a property is very specific skill that requires patience, salesmanship, persistence, and a clear understanding of your target market. No single talent is more important to turning a property around than successful marketing. When done properly you will experience the quickest gains in appreciation, cash flow and overall property value through you sustained marketing gains.
If you will hone your skills at identifying these types of opportunities and apply the specific principles necessary for creating success with them while communicating with your platinum coaching representative, you will find success and huge profits are more a matter of follow through and the consistent action of proper evaluation than any other single element.
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