Commercial real estate investing, like residential real estate investing, has a significant renovate and sell component to the overall profit and loss calculation. Many retail real estate investors view their properties solely in terms of their monthly revenue stream rather than as an asset that can be improved over time. In today’s competitive commercial real estate market, this could put you behind the curve in maximizing your return on investment. Learn the best info about VIG for commerical renovation.
There are several compelling reasons to renovate the commercial property. First, renovate your current home to increase its resale value. Purchase another low-cost property in a good location. Then, for future resale, remodel it. Third, consider subdividing your property into smaller office and retail spaces to increase the number of tenants and, thus, the amount of rent collected. Alternatively, excellent facilities can command higher rents. All of this is done to make the property more appealing to tenants and potential buyers, making it easier to get a good return on your investment.
As with any real estate investment, you must decide whether to buy and flip or buy, hold, and lease. Buying and leasing make sense if you intend to host your office in the facilities; additionally, tax incentives are available for commercial real estate held for seven years or more to help fund and encourage renovation work. All of this is part of the process of encouraging businesses to stay in communities and foster a healthy labor market.
Once you’ve decided to renovate for one or more of the above reasons, the question becomes, “What types of renovations will provide the best value for the money invested?” If tenants in your property are being renovated, they will be the first to inquire. If a tenant has recently vacated, it is also an excellent time to ask what kind of renovations and remodeling are desired. Checking the plumbing, adding conferencing space, and making the foyer more open and airy are all examples of worthwhile renovations. These improvements will help you qualify for the tax breaks available to long-term commercial real estate owners.
If you don’t have any tenants, the renovations you can do are much more extensive because you aren’t disrupting someone’s business workflow. Consider eco-friendly renovations first. These can range from replacing windows with triple-glazed thermal protection windows to more extensive modifications, such as elevators that capture electricity as they descend and use regenerative braking. If you plan to sell the building, using recycled materials in the renovation can significantly increase your chances of selling it, especially to younger business owners who see green buildings as a mark of prestige or a moral obligation.
While it is possible to spend more money on green renovations than the property is worth, several factors should be considered. The three most common are solar collectors on the roof, rainwater collectors that can be used for toilets and other gray water facilities, and a solar wall with black piping to let the sunlight do part of the hot water heating for the building. Unfortunately, much of the uproar over making green housing pay for itself through lower utility bills are based on bad math.
Most businesses will spend more on green features than they earn back over the expected operation time at current energy prices. When you make these types of capital investments in your property, you’re betting that the energy cost will rise shortly, and you’re also increasing the resale value of your facility. This is not to say they aren’t worthwhile; many green innovations in building construction make the building more habitable and reduce operating costs. The price value of reduced environmental impact is an unquantifiable benefit.
Renovation hazards include the usual risks associated with any construction project. Contractors may be late, over budget, or both. It is possible for renovations to go wrong. When considering renovations, take the time to interview your contractors carefully. Work with them through the entire process and establish metrics for what needs to be done and when it needs to be done. Work closely with your contractors without joggling their elbows or “backseat driving” the job.
Above all, make plans and stick to them – renovations are big projects, and big projects tend to take longer and go over budget as the final specification becomes more and more of a moving target.
If you build a new facility on a lot, you’ll probably go beyond the renovation completion. However, several options are easier to implement in a new building than in an existing one. Baseline water heaters (heat and cool rooms by running water through pipes beneath the floor), energy capture facilities such as solar arrays integrated into south-facing walls, a property-designed heating and cooling system with an energy-star-compliant ventilation system, and proper insulation are among them.
Make your renovation budget work for you by increasing the value of your home. The capital outlay now will yield a significant return on investment through a flip or increased leasing revenues.