Investing in Commercial Real Estate Part 8: Strategies to Increase Profits

There is no strategy that works in all situations. The best strategy to employ will depend on the type of property and the unique circumstances. For example, some apartment complexes can be converted to condos while others cannot. Raw land is difficult to lease to multiple tenants without improvements.

1. Raw land. There are a few ways to approach an investment in raw land.

• Lease the land. Land can be leased to farmers, lumber companies, hunters, and even to companies that wish to add improvements.
• Improve it. You could build homes, apartments, a shopping center, an amusement park, or something you think the surrounding community or market needs.
• Raw land can require additional time and money to generate income. The loan terms for raw land often reflect this fact. Expect your lender to require a large down payment.

2. Apartment buildings. There are two primary ways to increase income from apartments.

• Raise rents. Tenants expect that rents will increase each year, so raise those rents. Decreasing vacancies is another way to increase rents.

• Convert. Many apartment buildings can be converted to condominiums. It’s possible to make a lot of money this way, but zoning approval may be required. Do your homework.

3. Office buildings. Again, raise the rents over time and decrease vacancies.

While there are many complicated ways to increase the income and value of commercial properties, the basics are always the same.

• Raise the rents
• Decrease vacancies
• Convert
• Improve
• Accumulate equity

There’s no reason to overcomplicate things until your investments become more sophisticated. Find ways to increase revenues without increasing costs excessively. Consider converting your property to a higher use.

“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”

– Franklin D. Roosevelt

Thanks for reading! Stay tuned for the last couple of installments of this series, and let us know if you want to chat about your commercial real estate journey.