Upside Down is when you owe more than the property is worth ... and it feels just being hung out by your heels. Lots of Residential owners understand the pain of being Upside Down at the moment.
What we are all looking for in Commercial Property is UpSide
Upside is a term for any extra profit boost you can find in your next Commercial Property. Any little thing you can do that gives you and your investors a little additional profit kicker along the way.
Another term for this extra profit is Value Add .
You add value and then reap the extra rewards.
Upside comes from one simple source... Problems You Can Fix
That s right ... you are looking for properties with problems ... just make sure they are ones you can successfully address.
If you find a property with a Vacancy Rate of 15 in a market where the average is 5 . You MAY just have some Upside available to you there. It all depends on whether you can actually move the Vacancy Rate down to the Market Rate once you are the owner. And I assure you ... when you do, there will be a major return boost for your efforts.
Upside is a Three Step Process
1) Find the Problem
It isn t that hard to find problems in an ugly old Strip Mall or Apartment Complex with a bad reputation and a very motivated seller. Finding the problem is step one. This is the easy part.
2) Fix the Problem
The 64 thousand dollar question is how can you fix it? And it may be worth a LOT more than $65K to you.
Here is where you can lean heavily on your local team ... especially your Property Manager.
Your Property Manager will know the neighborhood, the market rents and standard amenities for this area. They may know this building well ... maybe they even managed it in the past. You can sit down with them even before you put in a Letter of Intent and brainstorm an action plan for addressing this property s problems and realizing the Upside.
Caution:
Keep in mind ... you are betting that you can fix a problem that the Seller couldn t. Don t get cocky here. Make sure you and your Property Manager can see a step by step solution built on strategies the Seller didn t use or didn t execute well.
3) Harvest the Upside
Remember the multiplier effect of the Capitalization Rate on any extra income you can retain at the property. The math is pretty simple.
Increase in Income / CAP Rate = Increase in Value
When you produce just $100/month in extra profit ... you add a full $20,000 to the value of the property at a 6 CAP Rate.
$1200 (per year) / 6 CAP Rate (0.06) = $20,000 in increased Value
Become an UpSide Hunter
The search for Value Add properties with Upside is what drives certain Commercial Property Investors to ferret out the tarnished, tainted or downright tawdry properties and become rehabilitation or repositioning experts. When you turn around properties with significant challenges you can see annual returns of 30 and much more for your efforts.
It all starts with a simple question ...
The shortcut to finding extra profits in your next deal starts with a simple question to the listing broker,
What s the Upside in this deal?
Here s to safe and profitable investing.
Author Resource:-
Learn Insider Secrets of Commercial Property Investment from Monte Lee-Wen who has personally purchased over $150M in Commercial Real Estate. VISIT HIS WEBSITE NOW http://www.investortours.com for Instant Access to the 14 page FREE Report "35 Reasons You Should Invest in Commercial Real Estate
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