Flipper/Rehabber · El Dorado Hills, CA · Member since 2017 · 31 posts · 8 votes
Hello BP,
One of my partners and I purchased a commercial building earlier this year. (First RE investment for me) I was wondering if there is any way to force appreciation by doing the bare minimum. Ultimately, I am looking to cash out to make some larger repairs like fixing the roof.
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
8y
@Stephanie C. You force appreciation by increasing the NOI. This can be done by raising rents as mentioned by @Harrison Smith. If you can reduce any of the expenses that will also increase the NOI. At 100% occupied you will either have to wait until the leases expire or negotiate increased rents by giving the tenants something. Maybe some upgrades. A longer lease may add some value when you try to sell, and carry some weight on a refi, but you may want to check that out with your lender.
Real Estate Agent · Biddeford, ME · Member since 2017 · 213 posts · 150 votes
8y
@Stephanie C. With commercial, forced appreciation is really only created through raising rents or extending leases. Most of your commercial spaces are appraised using the income method, so a higher rent or a longer lease makes the property income higher and more stable which translates into a higher value.
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
8y
@Stephanie C. You force appreciation by increasing the NOI. This can be done by raising rents as mentioned by @Harrison Smith. If you can reduce any of the expenses that will also increase the NOI. At 100% occupied you will either have to wait until the leases expire or negotiate increased rents by giving the tenants something. Maybe some upgrades. A longer lease may add some value when you try to sell, and carry some weight on a refi, but you may want to check that out with your lender.
Commercial Real Estate Broker · Seattle, WA · Member since 2017 · 110 posts · 79 votes
8y
@Harrison Smith and @Jeff Greenberg are correct. Increasing NOI (usually by raising rents) is generally the only way to increase values.
The other side of the coin is lowering expenses, have you thought about doing a property tax appeal? Given were at the top of a market (certainly in CA) taxes have been increased year over year for the last 4-5 years now. A property tax appeal may lower then and thus reduce the largest NNN expense and therefore increase your NOI.
Flipper/Rehabber · El Dorado Hills, CA · Member since 2017 · 31 posts · 8 votes
8y
Originally posted by :
The other side of the coin is lowering expenses, have you thought about doing a property tax appeal? Given were at the top of a market (certainly in CA) taxes have been increased year over year for the last 4-5 years now. A property tax appeal may lower then and thus reduce the largest NNN expense and therefore increase your NOI.
I would be worried that the property taxes would increase if I do a property tax appeal since we had it assessed when we were purchasing the property. Although I did not consider that it could possibly increase NOI.
This is actually a great thing as we are close to the end of the leases and the tenants are paying about 15% below current market rate. They are all long term (been there over 20 years) and have no real intention of leaving so I will be able to renegotiate for both increased rents and longer lease. Thank you both.
Investor · Northbrook, IL · Member since 2017 · 352 posts · 295 votes
8y
The other way is changing the use which can command higher rental rates in the market place. That is why we convert warehouses (low rental rates) into self storage. We can obtain a much higher rental rate per sf.
I would be worried that the property taxes would increase if I do a property tax appeal since we had it assessed when we were purchasing the property. Although I did not consider that it could possibly increase NOI.
You said "assessed". Did you mean "appraised"? Two different things.
Real Estate Broker · Philadelphia, PA · Member since 2014 · 159 posts · 108 votes
8y
Hi @Stephanie C., is there any way to get creative and add income producing space to your existing footprint? For example, converting unused garage space or back of house space into rentable storage for your tenants