Flipping residential properties has been popular a long time ago. But recently, flipping commercial real estate is becoming more and more widespread.
Residential real estate has more potential buyers when compared to commercial real estate. And that is why there are better chances of getting a higher price or sale. Therefore, a few best practices you need to know when flipping commercial real estate.
Simple Steps of Flipping Commercial Real Estate
The process of flipping commercial real estate is pretty simple.
Buy commercial real estate at a lower price or below market value.
Repair all that needs fixing.
Find a buyer and sell it at a higher price.
The catch is that you can never know precisely how much you are going to make.
Case Study
For instance,
The market value of a 3-storey terraced shop is RM 6,000,000.
You buy it for RM 5,500,000. (Means you buy below market value).
Renovation cost is RM 80,000.
Total cost is RM 5,500,000 + RM80,000 = RM 5,580,000
You sell it at RM 5,800,000, below market value RM 200,000, and can sell faster than your competitors.
Hence, you earn RM 220,000.
Furthermore, instead of selling the property, you may decide to rent it out. Although you will not get a lot of money, you can make a lot of profit in the long run. It can be a steady passive income, which is always good.
Tips for flipping commercial real estate
Although no 100% success, there are some good practices when flipping commercial real estate that can undoubtedly improve your chances.
1. Understand The Type of The Property
In general rule, supply and demand in the area you are considering investing in will determine property value. So, when commercial real estate is scarce in the area that you are interested to invest in, you will naturally have better chances of higher values, rental rates, and profit. But, in contrast, the places you want to explore will have low vacancies and limited space for future development.
Furthermore, commercial real estate including offices, warehouse, retail, mixed-use properties, and multi-unit apartments. And you need to analyze each of these property types separately when determining where to invest.
For instance, offices will be in the central positions (like KL Golden Triangle). As for industrial properties, they should be located near major roads or suburban areas. Besides, if the property you are looking at is well-suited for retail, it will have excellent visibility and preferably a lot of foot traffic.
2. Networking
When you want to flip real estate, you need to find a property that is below market value. Easy ways to get those deals, you need to cooperate with commercial agents, attorneys, bankers, leasing agents, and realtors.
3. Consider Leasing
It may be better to lease it than flip if you purchase a commercial real estate in a recovering market, as property values could rise, so it may be wise to wait and sell later (You can sell at a higher price and earn more profit).
Furthermore, the remodeling costs could be lower if you decide to lease. Commercial tenants, depending on their type of business, will require different properties. For instance, a retail shop or a tuition center will need different layouts. For this reason, you shouldn't make any long-term changes to your commercial property as it will hinder the chances of landing new tenants.
Important Note
Flipping is suitable for those investors who have enough finances to fix the property and then wait a good time for the sale. Keep in mind that selling commercial real estate usually takes longer than selling residential properties.
But, it depends on the market - if you have invested in a slow market, it could take years; in a hot one, your property can sell within a few months.
To make the right and wise decision, it is necessary to:
research and evaluate the market
assess the costs required (property price, renovation cost, legal fees, utility bills, and etc)
do the due diligence
The key to success when flipping commercial real estate is finding the right property. If you are looking for the right property, we are here to assist you.
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