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Real Estate Ways to improve the value of commercial property?

Discussion in 'Real Estate Investing' started by JesseO, Aug 4, 2007.

  1. JesseO
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    JesseO Contributor

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    I was wondering what some cost-effective ways of improving a commercial apartment complex might be. I know that I still need to fix some fencing, replace lots of old A/C units and their duct work, make the pool look nice, and repaint the entire place. What would give me the most bang for the buck? Does anyone have any experience with building improvments? Maybe installing new windows? The windows here are about 25-50 years old. Everything else on the interior has been refreshed. There are 30 units here, and I'm looking to make a $200,000 improvment to the value at the minimum, while spending as little as I can.....what are most renters/investors looking for? If I can bring the rents up a great deal then I can also increase the value of the property. It has been slightly neglected, and I can post pictures if needed. Thanks for any advice.
     
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  2. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    What brings in rents in your area?

    Fireplaces? Newer appliances?

    Home theater systems? ;)

    More-- or less-- bedrooms/bathrooms? (you can reconfigure units for this)

    A new roof, when it's needed, will always help resale value.

    Look at it from the buyer's POV:

    As the property stands, if you went to sell it, what would they want discounts/accommodations for? ("The water heaters are 30 years old, so we're going to have to replace them", etc.)

    If you can't think of anything, you could always hire someone (an apt inspector) to see the things you don't.

    I'm assuming that apt inspectors exist. They certainly do for the residential market (we use them w/every buy, since their ROI is about 40-80x what we pay them (4000-8000%).

    Disclaimer: The only apt bldg we ever bought we turned into a house. So take my advice with a BIG (huge, enormous) grain of salt! ('cause I know diddly about apts).

    -Russ H.
     
  3. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    Hey Jesse,

    Just to pass on a story:

    When we took over the Old World Inn, we planned on spending $250K to add a downstairs room (since it would increase revenues by $50-75K/year, and increase resale value by about $250K-375K).

    But what we did instead:

    Increased the value of our Inn by increasing occupancy and revenue (accomplished the same end, bringing in more annual revenue and increasing resale value).

    But we still had $250K left. In fact, now that revenues had increased, we had a lot more cashflow that we could do things with.

    So we bought another property, using the $250K as the down.

    And used the increased monthly revenues from the Inn to make the payments while we developed it.

    Not for everyone, but there you go.

    -Russ H.

    PS We're not done yet, but by all accounts, we should be getting $1,200,000 in additional revenues, and have another $1-2,000,000 in equity (and I'm being conservative here).

    Not a bad use of $250K, eh? ;)
     
  4. Yankees338
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    Yankees338 Bronze Contributor

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    Can somebody say "GENIUS"? That's definitely a good use of $250k in my book.

    Also, Jesse, what kind of shape are the interiors in? A fresh coat of paint and some new, inexpensive fixures can go a long way in making a place look newer for a pretty low cost.
     
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  5. SteveO
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    SteveO Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    Nice looking landscaping, especially at the entrance and office area are important. Since the pool is visible from the leasing office, it should be top notch as well. The pool is very old and needs to be updated.

    The paint is important as well. It protects the wood from damage and keeps the property looking clean.

    Residents do not want problems. The air conditioners will go a long ways toward keeping them happy if they are functioning efficiently.

    I am guessing that the windows are not worth the cost of replacement. You would know more since the tenants talk to you about the issues.

    As Russ has stated, the biggest value increase is going to come from increasing the revenue. Getting the rent to market value and marketing the property are going to be key. Too much money invested may take you the wrong direction. Keep the place clean and market/sell to increase gains.
     
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  6. JesseO
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    Thanks for all the great ideas, everyone =)
     
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  7. Adam
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    Adam New Contributor

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    SteveO hit the nail on the head, increase revenue. And decrease expenses, thereby increasing net cash-flow. I have seen so many apt building owners dump money into their buildings as if its their primary residency.(Not that you are doing this) Don't get me wrong, don't be a slum lord, but at the same time, the things that you want to do to the building because its yours, doesn't affect a renter's decision to rent from you or not. Maintain mechanicals, keep the place looking presentable and keep rents at or above market and expenses at or below market.
     
  8. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    SteveO mentioned marketing.... what marketing strategies would be ideal for this property?
    JesseO, is your property fully occupied? if so, then why would you want to work on marketing at all? Is the idea to keep the property in people's minds and/or create a waiting list?
     
  9. JesseO
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    JesseO Contributor

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    I don't see where that was mentioned, andviv, but yes if vacancy was a problem then I would definitely be advertising. As it is, I have a waiting list of 13 people and nowhere to put them...I see rent increases for current tenants comming soon. Commercial property values are directly linked to rental income and NOI, so making the place look better allows rental increases (to an extent), and lends to a higher value. Adam is spot on with his analysis, as was everyone else. I pretty much saw what I expected, but wanted to see if anyone knew of some creative or extremely profitable strategies. Thanks for the help =)
     
    Last edited: Aug 13, 2007
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  10. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    It seems that you are doing great in this area, so yes, rent increases are definitely coming.

    now, talking about decreasing costs... have you targeted something next?
     
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  11. JesseO
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    JesseO Contributor

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    Got any ideas?
     
  12. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    do you have a contract for landscaping? maybe re-negotiate it and/or asking other companies for competitive rates and/or better service. Also, do you have a contract for the pool maintenance?
    For utilities, are you using any kind of power-saving bulbs for common areas? (supposedly they pay for themselves in like a year). I used those for some of my rentals, but they were inside, not outside the structure, so I am not sure if the same applies in your case.

    Another idea would be to find out if it is possible to have the property assessment reviewed, to minimize taxes (TX is an expensive one for that, right?)

    I hope this helps.
     
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  13. JesseO
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    JesseO Contributor

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    Thanks for the reply, andviv. I do have a landscaping company doing that work for me. I will have to call around and see if I can get any other quotes. I do the pool maintenance myself. 99% of our outside lights are flourescent, which are the most energy-efficient. The only bulbs that might be using any real juice are the ones for our street sign. Tenants pay for all their own electric usage, so inside bulbs are incandescent(sp?) unless they get new ones. Also, we've kept the assessment low, and also used a company to reimburse us for any electrical bills that may have been excessive in the last 5 years or so. I appreciate your thoughts...do you have any other ideas? Thanks again.
     
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  14. Wolfgang5150
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    Wolfgang5150 New Contributor

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    I'm not sure if this is offered in your area, but here's a great free way that I am taking advatange of in my area. Verizon rolled out FIOS (Fiber optic cable internet/tv access) in our area last year. They offered to wire one of my buildings for free, (complete battery back-up etc.);every apt. will have their own hookup so that they can get hi-speed internet voice/tv etc.
    This is a much more attractive offer than cable or DSL as the speeds are much higher for the same or less money.
    Verizon is offering all kinds of deals to lock in customers away from cable.
    My current tenants are ecstatic about this, as well as future prospects. (Alot of younger tenants are using VOIP instead of a traditional land-line, or cell phone)
    Overall it's a great marketing tool. ('Entire building wired with hi-speed FIOS').
    Anyhow, just my .02.
    http://www.verizonfios.com/?ref=verizon

    kevin S.
    Orchard Park, NY
     
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  15. Yankees338
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    Yankees338 Bronze Contributor

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    I've heard FiOS isn't as fast as cable unless you're located right by the central wire or w/e they call it. Not many people know that, though, so it should still be a great marketing tool! And it's definitely less expensive than cable. If they have it in your area, I definitely recommend it.
     
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  16. Wolfgang5150
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    Wolfgang5150 New Contributor

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    I have had FIOS for one year now - and I live in the suburbs/country. My house is 600' from the main road. In can verify it is faster than cable, and more importantly, much more reliable. With cable we were getting knocked off line constantly. Sorry to hijack the thread.
    Kevin
     
  17. RealOG
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    RealOG Bronze Contributor Speedway Pass

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    There was a decent short article in NYTimes last weekend on improving commercial properties. A lot of it was quoted from a J T Reed interview. Decent, high level stuff on apartments, retail, and offices.

    I myself am journeying through the improvement of apartment buildings. I acquired my first building three months ago with some investors and have been working on making mostly administrative changes right now. Getting the "low hanging fruit" first, then will move towards fixing up external items like curb appeal.

    Have heard (and read) only good things about Steve O. Would closely study any advice he doles out.
     
  18. Bradley Shelle
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    Bradley Shelle PARKED

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    While there are hundreds of different ways to get your property generating more cash each month, some are more costly than others and the ones with the higher costs aren't always the ones that increase your property's value the most. In fact, its the low cost ones, that are created with your renters' best interests in mind, that typically generate the greatest return on investment.
     
  19. msa1
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    msa1 New Contributor

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    Well, a girl has to be good looking before you talk to her and find out if shes an idiot.

    I get tenants above my competetion because my houses are gone through completely. They look really nice. I only have one with central air and two with window units.

    Clean up the outside, and as much as you can on the inside. Then have nice appliances, then worry about the air (unless you're in the southwest).

    A nicer looking place will bring you better tenants and higher rents.
     
  20. Jito
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    Jito New Contributor

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    Add a cell tower!
     
  21. GLC65
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    It takes money to make money. Built in microwaves, dishwashers, jacuzzi tub, ventless fireplaces, hardwood floors, can all be options where you can easily increase $50 to $100 per unit. To attract higher end tenants, I would plant shrubs, plant trees, install shutters, new roof, new windows, paint and update common areas. First impression is key so I would make sure your staff is very well dressed and the office is modernized.
     

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