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Commercial Real Estate Investing_ Five Ways To Make Money


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Commercial Real Estate Investing_ Five Ways To Make Money

  1. 1. Commercial Real Estate Investing: Five Ways To Make MoneyFundamentally, there are about five different ways to make money investing in commercial realestate. Each one should be considered a tool in every investors commercial real estate investmenttoolbox:Strategy #1--Equity Buildup: Most people are familiar with the concept of increasing the equity in aproperty. Equity build-up is one of the key ways to make money in commercial real estate. It can bedone four ways:One is to initially buy the property below market value. This gives you immediate equity buildup. Todo this successfully, its important to have done your "due diligence" on your property, understandyour buyers needs, as well be a skilled at negotiating.The next way to build up equity is through appreciation of the property. This can easily be done if youare keeping the property in good repair and making sure that when you purchase the property, it is inan area that is growing. Its value is bound to appreciate over time.The third way to buildup equity is by paying down debt. The key to this strategy is to always strive toget the lowest interest rate possible on your mortgage or other debt instrument.The fourth way to create equity is when its time to sell, invest the effort to sell at above market value.Again, knowing your prospective buyer, having access to critical information, and being skilled atnegotiating can give you an immediate boost in equity.Strategy #2--Depreciation: At tax time every year, you can receive an after-tax profit boost becausethe calculated depreciation is taken is taken as operational expense directly against your profits.There is one caveat however: You can depreciate the cost of the buildings, but not the cost of theland.Strategy #3--Collect Rents: Getting the property to carry itself is the goal. But dont stop there. Youwant the rents to not only cover the mortgage and ongoing maintenance and any major repairs - youalso want the extra cashflow to perhaps pay down the debt to increase equity or fund anotherinvestment.Strategy #4--Offer Attractive Financing: When it is time to sell the property, you can often negotiatea better deal for yourself when you offer attractive financing or more convenient terms to the potentialbuyer. For instance, a prospective buyer may be willing to pay a higher overall price if they dont haveto pay as much cash upfront.Strategy #5--Add Significant Value to the Property: This is one of the most valuable ways to makemoney. When you add significant value to a property, you can often get a big boost in profits. Addingvalue can be done several different ways:First, look at making strategic improvements. Making repairs is obvious, but also look for strategicimprovements to make in the property. By strategic, we mean to concentrate only on those items thatwill raise the value by multiples of what they cost you.Then, analyze whether theres an opportunity to convert a higher and better use. When there is ahigher and better use for the property, it can be worth substantially more. For instance, if you own raw
  2. 2. land in the path of progress, you could get it converted to commercial zoning.There is an old saying "Buy by the yard, sell by the inch." Applied to commercial real estate, it meansbreaking up a property can often increase the value. For example, you can buy raw land, turn it into asubdivision, and sell off the lots to independent developers to build on.In summary, use this quick "checklist" as a way to jumpstart your commercial real estate money-making creativity. It will give you some additional ways to make money you may not have thought ofbefore.Heres the key takeaway: When investing in commercial property, a savvy investor will always factorin as many possible ways to make money into the investment as possible. Because thats the nameof the game--to make as much money in as many ways as you can, with the least out-of-pocketinvestment.burbank CA real estate