data shows that profits from CRE flipping have reached their highest levels in two decades. The sector is also showing signs of recovery with sales returning to pre-pandemic figures.
If you're considering venturing into flipping commercial spaces, here are some essential tips to consider.
Connecting with brokers, potential buyers, bankers, lawyers, and agents can save you both time and money. Let's unpack why each connection is important and how they can collectively add value to your flipping business.
• Brokers have their fingers on the pulse of the commercial real estate industry. They can provide crucial data (such as current pricing trends and inventory levels) and guide you through the complexities of property transactions.
With their experience and connections, they can offer you invaluable advice on which properties offer the best potential for a profitable flip.
• Engaging with potential buyers gives you direct insights into what the market is currently seeking. By learning their preferences, you can better tailor your property to meet these specific demands. This can increase the property's marketability and, ultimately, its final sale price.
• Bankers often have information on properties that are about to go on the market due to foreclosure or repossession. Being in the good books of a banker could mean you get preferential access to these high-potential properties before they are publicly listed.
This is an excellent way to get ahead of other investors and flippers.
• Legal matters can get complex when dealing with commercial real estate. Whether its contract negotiations, zoning laws, or tenant agreements, having an experienced lawyer can ensure you navigate through legal complexities effectively.
This reduces risks and saves you from potential legal headaches down the line.
• Real estate agents are skilled at matching buyers with the right properties. If you have a good relationship with agents, they are more likely to recommend your flipped property to potential buyers.
They can also help you acquire a property that fits your flipping criteria, making the purchase process smoother.
Having a strong network amplifies your capabilities as a commercial real estate flipper. Through collective wisdom, data sharing, and quicker access to opportunities, you're not just operating on your own instinct and limited knowledge. You're leveraging an entire ecosystem of expertise to make better investment choices, mitigate risks, and maximize your profits.
The value of the property doesn't exist in a vacuum. The area surrounding your commercial property can significantly affect its price. Here's a deeper dive into what different facets you need to look at when evaluating a neighborhood:
• Crime rates - High crime rates not only deter potential buyers or renters but also may result in higher insurance premiums, impacting your profit margin. This is why researching crime statistics should be one of your first steps in evaluating a neighborhood.
Look at not only current data but also trends to see if crime rates are improving or worsening over time.
• Accessibility - How easy is it for people to reach the property? Accessibility can be a major selling point. Good public transportation, convenient highway access, and even the quality of local roads can all have a significant impact on the ROI on commercial real estate.
A well-connected property is generally more attractive to potential tenants or buyers, particularly if it’s a commercial space that relies on customer foot traffic.
• Proximity to amenities - Amenities like shopping centers, restaurants, gyms, and parks can make a commercial property more appealing to potential tenants or buyers. These amenities don't just offer convenience—they also contribute to a better quality of life for anyone who works or lives nearby.
The proximity to these facilities can add a premium to the property's value, making your flip more profitable.
• Future development –commercial real-estate Investors who succeed in flipping and investing often have a CRE investing strategy. Pay attention to future development plans for the area, such as new business parks, transportation hubs, or public facilities.
These developments can significantly boost property values. It's also important to find out if there are potentially negative changes (like plans for a landfill or prison nearby) that could negatively affect the property's value.
• Zoning and regulatory considerations - Check the local zoning laws and regulations as these can impact your property's potential use cases. Zoning laws can change, and being aware of upcoming changes can give you a leg up.
For example, if an area is expected to be rezoned for mixed-use, the property's value may increase as it can attract a broader range of tenants.
Remember that you're not just investing in commercial real estate but also in the community its part of. Being thorough in your neighborhood evaluation can set you on the path to more successful and profitable CRE flips.
Focusing on the bones of a building can save you from unforeseen expenses and challenges. Let's delve into what structural aspects to focus on and how they impact your commercial real estate investment.
• Plumbing - Poor plumbing can result in water damage, mold growth, and even structural issues over time. To sidestep these expensive and time-consuming problems, ensure the plumbing is in good condition.
Inquire about the age of the system, when it was last inspected, and if there have been any recent issues.
• Insulation - Poor insulation can become a money pit in the long run. Poorly insulated buildings are not just uncomfortable—they're also expensive to maintain. Moreover, in today's environment-conscious world, a well-insulated building can be a selling point.
Conduct a thorough check of the insulation material, its condition, and whether it meets the current energy-efficiency standards.
• Internal support systems - The internal structure (including the foundational supports, columns, and beams) is literally what holds the building up. Problems here can lead to catastrophic failures and legal nightmares.
Checking the integrity of these core elements is non-negotiable. Hire qualified professionals to conduct structural assessments before you commit to a property.
While it may cost more upfront to address structural issues, leaving them unattended can dramatically escalate your expenses in the long term and potentially make the property unsellable.
When you know that the core elements are sound, you can focus on enhancing the property’s aesthetic appeal, safe in the knowledge that you won’t be hit with unexpected structural repair bills down the line.
Elements like HVAC systems, digital wiring, and optimized connectivity are crucial for most tenants. Investing in these features can significantly increase your asking price. Additionally, cosmetic enhancements like a fresh coat of paint and some interior design tweaks can further boost property value without breaking the bank.
• HVAC systems - A modern and efficient HVAC system can be a significant selling point. Tenants want to know that they'll have a comfortable, consistent environment, and landlords benefit from lower maintenance costs and energy efficiency. Upgrading an outdated HVAC system can pay off when it's time to sell or rent the property.
• Digital wiring and optimized connectivity - Older commercial properties may lack the infrastructure to support high-speed internet, Wi-Fi, and other digital needs.
Upgrading the wiring and connectivity options can make the property far more attractive to tech-savvy tenants who may be running digital operations. This is often a necessity (not just a luxury) and can significantly impact your asking price.
• Paint and interior design - While structural and functional elements are crucial, never underestimate the power of aesthetics. A fresh coat of paint can make a world of difference in how a property is perceived.
Choose neutral tones for broad appeal, or tailor the color scheme to the type of business you anticipate will occupy the space. Interior design tweaks, such as modern fixtures or an updated reception area, can also add a "wow" factor without requiring a huge investment.
Investing in these essential features can not only increase your asking price but also make the property more marketable.
Another critical aspect of successfully flipping commercial real estate is maintaining good relationships with your funding sources. Whether it's traditional lenders, venture capitalists, private hard money lenders, or crowdfunding platforms, knowing who to go to when you need capital is invaluable. Here’s why:
• When you've successfully closed deals before, it’s easier to get financing from commercial real estate for future projects from private commercial lender. A lender who has made a profitable investment with you once is more likely to do so again. Keep open lines of communication with your funding sources.
Update them on how their money is being used and what the returns look like. Transparency builds trust, which could lead to better terms and faster financing in the future.
• Having a strong relationship with various funding sources also gives you an edge in negotiating terms. You may be able to secure lower interest rates or even more flexible payment schedules.
In some cases, a lender may be willing to take a risk on a more ambitious project because they have confidence in your ability to deliver.
• As you know, when it comes to commercial real estate flipping, timing can make or break a deal. Having a well-maintained relationship with funding sources can accelerate the approval and disbursement process.
When a property hits the market and you need to act fast, having a dependable financial partner can make all the difference.
Looking for a reliable financial partner in your commercial real estate endeavors? Capital Investors Direct, based in Rockville, Maryland, offers investors nationwide tailored commercial real estate loan solutions that might be hard to come by through traditional banks.
Expect fast closing, competitive interest rates, a hassle-free application process, and highly customized loan structures to fit your unique needs.
Contact us today to learn how we can work together to make your property ambitions a reality.
