Commercial real estate investments have historically provided great appreciation in value that meet and even exceed other investment types. If you’re thinking about buying a commercial property, it’s crucial to know that there are a lot of ways to enhance and increase the value of your investment.
A higher property value benefits you in several ways. A structural and cosmetic makeover, for instance, could drive customers and tenants and justify increased rental prices. When you decide to sell your property in the future, you may benefit from a higher potential sales price. Rising values could mean more property taxes to pay but certain tax benefits, like depreciation deductions, can shield a large portion of your income.
Generally, the value of the commercial property is primarily driven by the cash flow it generates. With this, any strategy meant to increase the property value has the potential to relatively increase your cash flow, decrease your expenses, and boost your overall equity. So if you want to make the most of your commercial real estate, here are some ways to boost your property value and get a great return on your investment.
Make cost-effective structural improvements
1. Improve the interior and exterior design. The external appearance of your property has a great influence on its value. Update the windows and doors, repaint and refresh the outside brick, and invest in professional landscaping. Next to cosmetic changes, you may invest in the garbage disposal and cleaning procedures as well. Update the signage too, which is the first thing that people see from the outside,
Same goes for your interior. Update everything, from minor cosmetic issues like repainting the walls and bringing furniture up to date to major concerns like electrical and plumbing.
2. Add square footage. If your rental property has a demand for more tenants, then investing in extensions can be practical in the long run.It depends on the company’s purpose. Adding square footage allows you to add more amenities, like an office, warehouse, storefront, storage, parking and other usable spaces, thus increasing the value. Facilities like parking spaces can give your property a competitive advantage.
Just make sure that all of the added square footage are rentable and usable; excess lobbies, unfinished areas, and poorly organized spaces can be converted into rentable areas.
3. Think about security. Security systems like gates, alarm systems, and shutters can boost the property’s value by making the establishment more attractive to tenants. In addition, these features can also lower your insurance premiums.
Adding Profits While Subtracting Expenses
4. Increase your profits. One way to add value is by increasing your profits. If you own a rental property, you can raise your tenant’s rent. You may also increase the price of your products. Just make sure the structural and cosmetic improvements and upgrades can justify your increase. Check out your competitors as well.
5. Reduce your bills. Assess the operating statements of the property for the past few months or years to determine the areas where you can cut expenses without impacting the operations significantly. Let’s start with your electric and water bills.
Eco-friendly alternatives may cost money upfront but it will save significantly in the long run. Cut the costs by switching to energy efficient light bulbs throughout the property. You may also invest in solar panels, modern energy-efficient appliances, and energy conserving windows. As for water, simple updates including changing the aerators, flush valves, and opting for touch-free faucets can help lower your water expenses. Lastly, make sure to implement rules for energy and water consumption.
6. Pass expenses to others. If you own a rental property, you should pass utility costs, like water, electricity, and gas usage, on to tenants. Consider installing sub-metering devices to precisely determine each of your tenant’s consumption, and begin revising your collection process.
Re-evaluate your property value
7. Assess your property’s profitability. Find out how much other commercial properties in the area sell for and know which establishments are the most desirable in that area. What’s in demand in the neighborhood? What are future developments are happening? Will there be a school, condo, or shopping center that’d affect the supply and demand of your investment?
These will help you determine what direction to go in for the commercial aspect of the property.
8. Alter the property’s intended use. Oftentimes, altering the use of a commercial real estate property can change the value of that property. For instance, you find an old industrial warehouse in the middle of a bustling metro. Instead of keeping it a warehouse, you can convert it into a rental property, a hotel, an office building, or any commercial establishment that’d make sense for such location.
9. Update your property valuations. Property valuations are often outdated and inaccurate. A simple reassessment oftentimes can significantly reduce your tax obligation, thus improving the overall state of your commercial property.
Properties are often assessed by the local government units, but if you think the property is overvalued, you may seek a tax assessor and request a reevaluation. You can also contact a real estate agent specializing in appealing property assessments.
In Australia, one of the people they seek is a “quantity surveyor.” They are responsible for conducting relevant property inspections, estimating construction costs, assigning asset values and effective lives, and issuing a tax depreciation schedule.
Author Bio: Ina Salva Cruz is a resident writer for Depreciator, an Australian-based business specializing in Tax Depreciation Schedules. Being an enthusiast of pursuing financial security herself, she writes and shares self-help articles focused on personal finance, tax planning, and property investing.