As a property owner for commercial businesses, you have a lot on your hands as a real player in the commercial real estate industry. Real estate is, and always will be, competitive and ever-changing, which is why it can be challenging to stay ahead of the game and increase the value of your commercial property.
In this blog post, we will share some useful tips to help you increase the value of your commercial property and make the most of your investment.
1. Decrease Vacancy and Tenant Turnover
Vacancy and turnover cost money in multiple ways – advertising costs, repair costs, etc. The best way to minimize vacancies (thus ensure positive cash flow) is by finding long-term tenants and do what you can to keep them.
Other ways to ensure you are keeping your properties occupied is by charging the appropriate rent and having characteristics that set your commercial property apart from competitors, such as an excellent location as well as customer service. Whether you personally manage your properties or have a property management team behind you, make sure your tenants are treated with respect and professionalism, their concerns are valued, and matters are dealt with urgently and to their satisfaction. Remember, happy tenants = long-term tenants.
Note: In case your tenant must move from your commercial property, the vacancy can still be minimized through keeping turnaround time to a minimum. You can achieve this by posting ads the minute you learn of the move in order to ensure having a new tenant to move in immediately, thus maintaining a positive cash flow and high rental income.
2. Increase Rent Strategically
The most obvious approach to maximize positive cash flow is to raise the amount of monthly rent. This seems like the easiest solution; however, this step must be carefully considered before implementation. Yes, it will immediately increase your cash flow, helping to improve property value, but keep in mind, if done impulsively, you run the risk of increasing vacancies.
So, when is an increased rent acceptable? If the economy and the local real estate market are doing well, you could use this to justify the higher rent. When the economy is healthy, tenants are most likely doing well financially, and thus would not object to paying a little more every month.
Bottom line: Tenants will accept higher rent payments if they feel the rise in price is justified. (More on this in my next point). Otherwise, they may be tempted to leave your property and search for another. The goal here is to charge the best possible rent without causing tenants to leave or reducing your ability to attract new tenants.
3. Make Improvements to the Property
Ensuring that the premises is kept well-maintained at all times is the cheapest and easiest way to boost the value of any commercial property. Another idea is improvements – cosmetic improvements or substantial rehabilitation. Let’s touch on cosmetic improvements first. Updating your property’s landscape or even upgrading windows can reduce operational costs and utilities and give your property a streamlined aesthetic. Some other options to keep in mind: a fresh coat of paint or installing new signage.
Repaving the parking lots also shows the attention you are giving to the property, which in turn, justifies why the rent will be increased. Substantial rehabilitation involves making structural improvements to the property – for example a substantial rehab may involve changing the structural façade of a shopping center or making major renovations to the lobby of a large office building. In any case, you increase the value of the property for not only your tenants, but for your own portfolio as well.
4. Decrease Expenses
Every property has operating expenses that directly impact the property’s net operating income. Hence reducing operating expenses is a great way to increase property net operating income. That is the big picture that you should keep in mind as you go after and identify areas that could use some alterations.
For example, perhaps improving the property with more energy efficient lighting in the common areas will drastically reduce your monthly electrical bills. Analyze your opportunities to harness commercial technologies that can significantly decrease your operating expenses such as low flow water-saving plumbing appliances and increased insulation. You will thank us later.
Conclusion
The value of a commercial property is primarily driven by the cash flow it generates. With this, any strategy meant to increase the property value has the potential to increase your cash flow, decrease your expenses, and boost your overall equity. If you want to make the most of your commercial real estate investment, use the tips we have provided here to help increase your property value and get a great return on your investment.
