Maximizing Commercial Real Estate Performance

With a little research, planning, and forethought commercial real estate performance can easily be maximized. From the newbie investor to the seasoned professional, a little bit of homework can go a long way in reaping the success in the industry. Formulating a strategy is step one in the process, by knowing the market and crunching numbers a game plan can be put into place. A variety of deal types exist in the commercial real estate market and each investor has their favorite type. From retail to industrial and everything in between nearly all commercial real estate can produce a successful performance level.

In commercial real estate there are three main ways in which to make money; they are cash flow, principal buildup through paying down a loan and appreciation. An investment can offer just one of these ways or all three of them. Cash flow is defined as the money that is left from the rental income after an investor has paid expenses and mortgage costs. As the mortgage is paid down this results in principal buildup. While paying down debt and increasing leverage can aid in the increase of money received with the upside comes the downside of an increased risk. Appreciation is found in a property through a variety of mechanisms including purchasing a property below market value and/or making improvements to the property that will increase the value. Adding value to real estate is one of the easiest ways to increase performance levels.

In some cases, certain attributes can affect the rental value of real estate in a negative way. While some things can’t be changed, such as location, other items can take a small investment to make a big change. Cosmetic changes such as replacing windows, a fresh coat of paint, updated landscaping, etc. can all easily add big value compared to what was spent for updates. Another way to increase performance in commercial real estate is to find good deals. While this may not always be an available option, the better the deal is on the property the easier it is to have instant equity. Some commercial property investors seek out low priced property that can stand to have work done to it then turn around and sell it at an increased profit for not much time or money put into it. Other investors enjoy the appreciation of the investment but employ a buy and hold strategy on the property and are able to realize monthly income as well. Many commercial real estate professionals go by the adage of “You make money when you buy.”

Commercial property investment versus residential property investment does have its ups and downs. The collection of rent in the commercial real estate sector is typically easier than that of residential rentals because the business owner has a vested interest in the space and the community in which they serve with their business. Whereas a residential tenant doesn’t have much (if anything to lose) by walking away from a rental property with unpaid rent fees. Commercial real estate is known for the purpose of generating profit, without profit on an investment it’s not worth much. Rent collected over time will also lead to profit in most cases. The commercial real estate field can be lucrative when business is done smartly.