Do you find value in this?

15 Replies

Hi all,

I'm working on offering a free report to commercial real estate investors and multifamily property owners as a way to build my authority, credibility, and expertise in my local community, and I'd like do get your opinion on it. My marketing plan is to mail out letters introducing myself to the community and offering my free report as something of value. No hard-sell, just free information in exchange for an introduction. Hopefully this post isn't too long, and I appreciate those of you who take the time to read it (takes less than 10 mins) and comment.

_________

Dear Commercial Property Owner,

Have you ever thought to yourself: if I could just increase my cash flow from my commercial property and experience a higher return on my investment then I could… pay off my loan faster or… increase my net worth or… sell this asset to exchange into a different property or… pull my equity out to buy a second home in my dream location?

If you are a commercial property owner, you may find the following information valuable - here’s why:

You’ll discover tips on:

  • How to increase your building’s net operating income
  • Methods to cut your building’s expenses
  • Creative ways to increase your building’s value

Owning Commercial Real Estate is Like Running a Business

Owning and managing a commercial property and running a business are very similar – the goal is to be profitable. And while there are many other similarities between real estate and business, there are a few qualities of real estate that put it in a class of its own. I find it interesting that many pundits in the media are always clamoring to invest in the latest and greatest company, and how few of those same people are discussing the merits of commercial property ownership.

There are two main qualities of real estate that I’ll highlight here to illustrate why I believe it to be the better choice: first, it is a much more permanent investment when compared to a company. Think of how many buildings there are around the world that have existed for 50, 500, or even 1,000 years and are still standing today! Comparatively, how many large corporations have been able to succeed for that long? If you look at the Fortune 500 from 1955 and compare it to the list from 2015, you will find that only 12% of the companies listed made it to 2015. Not exactly the same longevity.

My second reason for believing real estate to be the better investment is that it is constantly appreciating in value. As time goes by, the value of the asset steadily increases, keeping pace with inflation, if not beating it. These, among a multitude of other reasons are why many of the wealthiest individuals and families around the world have used real estate as their vehicle to achieve financial freedom.

Perhaps the one main concern of investors about real estate is that there are many aspects to owning commercial property that require your constant attention and care. The most successful commercial real estate owners take an active role in the management of their property. With sound investment advice, due diligence, and consistent maintenance, commercial real estate investors can generate far better returns from their properties than traditional investments like CDs, or stocks and bonds.

Of course, generating an exceptional return on your investment is something that every commercial property owner strives for. However, there are cases when you may not be seeing such returns for a variety of reasons. I have put together this report to share with you three strategies that you can implement today, without investing large sums of money in capital improvements, to make your ownership experience more profitable and enjoyable.

As you keep reading, we will dive right into the three strategies that you can implement today to increase your monthly cash flow in the near-term, and likely increase your property’s market value in the long term, for if and when the time comes to sell.

STRATEGY ONE:
INCREASE YOUR NET OPERATING INCOME

Your number one priority as a commercial property owner should be to maximize your net operating income (NOI), as your building's value is based almost entirely off this number. The net operating income is calculated by taking the sum of all the rent collected during the year and then subtracting all maintenance, taxes, insurance, and utility expenses. Your building's fair market value is established by taking the NOI and dividing it by the local market capitalization rate. The cap rate is the rate of return the market has determined is adequate to deploy capital for this type of property.

As a commercial property owner, you inherently understand that NOI should be your focus because commercial properties derive much of their value from the income they produce. Thus, if you can increase your net operating income, your building's value can raise by a proportional amount. Below I'll expand upon the two main ways to increase your NOI: be at or near 100% occupancy, and increase your rental rates.

Occupancy

Let’s first discuss occupancy, since having vacant space inherently means less income. The rent your tenants pay to occupy space in your building is its main source of income, so you obviously have incentive to lease all of your spaces and then keep them leased.

What does it take to do so? Primarily it takes attracting great tenants, having a professional leasing advisor who can properly market and screen for great tenants, a professional management company that does a stellar job at taking care of your tenants, and properly positioning your asking rent so that prospective tenants perceive your building as being a good value.

As a commercial real estate agent, I’ve seen that there are many building owners who take on the task of leasing their buildings themselves. I’m always surprised when I see this however. While most building owners realize that they do not want to manage the property themselves on a daily basis, they don’t realize what a specialty it is to find and attract the right tenants. This should not be taken lightly, and I highly recommend finding an experienced leasing advisor that has the creative vision to see and understand what business owners will be looking for in a space, along with the necessary communication skills to be able to convey that vision.

The reality is that leasing and marketing your building should be taken just as seriously as any other aspect of commercial property ownership. It’s just as important because leasing to solid tenants is the primary driver of great cash flow, which is how your building is going to be valued in the marketplace.

Beyond properly marketing the space, it is crucial to understand that when business owners are in the market to lease that they are looking for a space that will reflect what their business does, how it operates, and how it succeeds. So, take the same approach with your own building by envisioning what your spaces can become in the future, not what they are now. A great leasing advisor will be experienced in this process from doing many, many leasing deals and will have the vision to be able to communicate it to the prospective tenant. You want someone who can sell the tenant on how being in your building will be good for his business.

When you position your building properly, have professional leasing advisors who are on the front lines daily with tenants seeking new space, and have a professional management company that can smoothly maintain and operate your building, you have a recipe for maximizing your occupancy. Now you're on your way towards maximizing your NOI and profit potential.

Rental Rates

Your second tactic for increasing your net operating income is to use the ideas we just discussed as justification for charging the appropriate market rent. If you’ve accomplished the trifecta of proper positioning, professional leasing services, and professional management, you put your building in the best position to create demand from business owners who looking for space. Higher demand to be in your building means you can ask higher rental rates.

At this point, don’t shoot yourself in the foot by not charging the appropriate asking rent. Unfortunately, there are many times when commercial property owners charge their tenants below market rates, if for no other reason than to “be nice.” We are all familiar with the saying “it’s not personal, it’s business,” and commercial property ownership is no different.

By charging below market rents you are hurting yourself in the near term by limiting your cash flow and profit potential from your investment, and hurting yourself in the long term by inadvertently lowering the potential sale price of your property. As we discussed earlier, commercial properties derive the majority of their value from the net operating income. By working hard to raise the NOI, you can raise your building's market value and better position your property in the marketplace.

If you’re feeling apprehensive about raising your rental rates, I recommend at least taking the time to see what other nearby buildings of similar character are charging for rent. The marketplace will tell you what is fair, and if you are charging below market rates, I urge you to raise them as soon as possible.

Now obviously, depending on the number of tenants you have in your building and the length and structure of their leases, raising your rental rates may be difficult. And it may take some time to fully implement this strategy. But having the foresight to do so will pay off by providing you with increased cash flow now, and likely a higher sale price later, for if and when the time comes to sell.

STRATEGY TWO:
DECREASE YOUR EXPENSES

When it comes to commercial property ownership, expenses are generally the factor you have the least control over. Typical expenses are for repairs and maintenance, utilities, advertising and marketing, management fees, payroll, property taxes, and insurance. Of these, property taxes, insurance and utilities will be the largest expenses against your property. Some costs you are only able to reduce by so much.

What then, can a commercial property owner do to mitigate these costs? First, you will need to have a proper understanding of each and every one of your expense items. I then recommend that you break them down into a cost per square foot basis. Once you have done this, you can now begin to structure your lease document so that you can pass your main expenses on to your tenants via Triple Net or NNN leases.

To summarize, a NNN lease is one where you, the landlord, can pass certain costs of property ownership on to your tenets as an additional expense on top of their base rent. The "nets" refer to your building's property taxes, maintenance, and insurance. This way your tenants are paying for the costs of running and maintaining the building, dramatically reducing your out of pocket expenses and increasing your net operating income.

This is one of the most effective ways towards making a big change in your expense category. Among the various types of commercial leases, the triple net lease is by far the most favorable to the landlord and will play a major factor in your ability to increase your cash flow/net operating income; both in the near-term and in the long-term.

I recommend that you spend the time to calculate the yearly average cost of these expenses against your net operating income. Doing so will help illuminate the issue so that you can decide to charge your tenants, instead of paying for the expenses on your own. It is true that you will need to keep diligent records of your expenses and provide a yearly reconciliation to your tenant. And yes, it will take some time and effort in the beginning to implement this strategy. But if doing so could add thousands of dollars to your net operating income, thus increasing your cash flow while also increasing your property’s value, wouldn’t it be worth it?

STRATEGY THREE:
BE CREATIVE WITH ADDITIONAL SOURCES OF INCOME

Perceptive landlords don’t stop at the above strategies; they look for additional ways to maximize the value of their building. Take a moment and think about what amenities your commercial property offers your tenants. Are there a few perks that your tenants take for granted that you could break out as a separate expense?

For example, in an office building you could charge a fee for additional storage. Or if your building offers on-site parking and there is limited street parking, a small monthly fee for the convenience of parking close to work can easily raise your net operating income. This works well for service related businesses that rely heavily on foot traffic, such as medical professions.

For owners of multifamily apartment complexes there are many simple ways to increase net operating income: update the exterior and interior of the units to reflect current trends, install in-unit washer and dryers, use sub-meters for utilities, offer on-site workout facilities, install LED lighting in all the common areas, or charge additional rent for allowing pets.

Every little dollar helps, so I urge you not underestimate even the smallest of increases. A few hundred dollars a month added to your net operating income will translate into thousands of dollars over the course of a year. Try to be creative while providing value for your tenants. Create add-ons that your tenants will desire and be happy to pay for. This will help properly position and differentiate your commercial property from others in your local area. It will also create higher demand from prospective tenants vying to be in your building, justifying your market rental rates.

INCREASE CASH FLOW NOW, INCREASE SALE PROCEEDS LATER

Successful profitability is what business and real estate are all about, so I recommend that you to treat your commercial property ownership like a business. Don’t think you that won’t be able to implement these strategies right away and not see any results, because if done right, you will. The best part about implementing these strategies is that you can test each of these ideas one by one to find out which one works best for your property.

Your goal is to manage your property intelligently and efficiently to maximize the value of your building. Thus, you provide value for yourself in the near-term with increased cash flow, and in the long-term by increasing your building’s market value for when and if the time comes to sell. Properly position your property, and engage with a professional leasing advisor and property management company. They are your team mates on your journey towards commercial real estate success. Prepare now so that you’re ready for when that day comes to make a change by enacting these strategies right away.

@James Kendall

Hi James

I would add some type of graphics or pics to make it easier to consume.  Great idea to position yourself as an authority in the space, adding value before asking for something.

I can share with you our Credibility Book and you can pull ideas from there.

Best

Gino

That's definitely a great idea. But I agree with @Gino Barbaro in you should add pics. In addition to that, you should add bar graphs that back up your article. People like to visualize and want to see facts, helps them make decisions easier. 

@James Kendall I agree with @Gino Barbaro and @Juan Vargas about adding graphics and bar graphs. You want your information to be as easy-to-read and visually appealing as possible. Don't go overboard with the graphics, though. 

I would also suggest reading about copy-writing to improve your writing as well as working with an illustrator (get them through Fiverr, Elance, etc) to make your document look more appealing. It's always best to get a second pair of eyes. 

Before sending out your first document, I would suggest setting up 1-2 additional communications that will automatically be sent out a pre-decided time (say 4-6 weeks after your first one). This will take the "pressure" off you and also allow you to run things on auto-pilot.

@James Kendall I agree with @Gino Barbaro and @Juan Vargas about adding graphics and bar graphs. You want your information to be as easy-to-read and visually appealing as possible. Don't go overboard with the graphics, though. 

I would also suggest reading about copy-writing to improve your writing as well as working with an illustrator (get them through Fiverr, Elance, etc) to make your document look more appealing. It's always best to get a second pair of eyes. 

Before sending out your first document, I would suggest setting up 1-2 additional communications that will automatically be sent out a pre-decided time (say 4-6 weeks after your first one). This will take the "pressure" off you and also allow you to run things on auto-

Hi guys,

Thank you all for your replies. 

To be clear, I do have a cover page for this report that isn't included here that has some color and an image of a man talking on the phone in an office high rise with other commercial buildings in the background.

@Gino Barbaro I like the idea of some additional graphics to spice it up, and I would very much like a copy of your Credibility Book if you wouldn't mind sending me it.

@Juan Vargas I agree, bar graphs could add some visual appeal to it. In the case of my report, I'm thinking that would mean putting a hypothetical property into the report as an example with some before and after numbers. What did you have in mind?

@Omar Khan It's funny that you mention the copy-writing as I have been studying that quite extensively. How did you feel the report read? I had put more personality into it in previous drafts but my broker is on the conservative side and doesn't want any "cheese" factor. Our firm has a strong reputation in the community and he doesn't want to dilute the brand, which I understand. As far as the communications with property owners, I'm sending out a 3 sequenced mailing, with each letter referencing the first and offering the free report. All I'm asking for is to say hello and have an introduction.

This is the first test run of my whole marketing plan, and the best direct response marketers suggest to start small. As I work my way through the process and test the various components, the free report is going to be offered as my lead generation magnet, and when an owner requests it I will actually be sending them a box full of information, with the idea of building my authority, credibility and expertise. The box will have the report, additional reports, a few copies of my news letter, a micro sales letter, a checklist on how to choose a CRE agent, and a copy of my book that outlines the sales process with tips/tricks and pitfalls to avoid.

After the box is sent out in the mail, I have a 40 day follow up sequence that involves direct mail and email (I'm not touching them every day, more like twice a week). If they're still not ready to move forward I put them into the long-term follow up campaign and ensure that they get a copy of my monthly newsletter in the mail.

I'd love to hear your guys thoughts on the process and if there are any suggestions on how to improve it.

Thanks again!

@James Kendall Nobody will read all of that. If you goal is an introduction, simply offer them a free consultation to determine how to increase the cash flow of their real estate business. The rest of that information can be given once they respond to the initial offer.

@James Kendall I tend to, partly, agree with @Anthony Dooley . My personality type craves detail but I've realized (the hard way) that most people want things to be handed on a platter (esp if they are your customers). And the customer is always right!

You're on the right track but you might need to change your approach. That being said, you will NEVER know what works without trying. I would suggest A/B testing and figuring out what works for your market and list. Often times, the dumbest things work and the smartest things don't. Plus, this is a trial and error exercise. 

Keep us posted!

@James Kendall , yes adding a hypothetical property into a report is a great way for owners to see it and visually compare it to the property they own. Another way is by adding a bar graph which demonstrates the capital lost  when they weren't run properly and by showing the potential value they could have had and traded for. 

@James Kendall you got some great advise here.  I would add to start with your hook. Free Report—maximize your property value!  Or something like that.  

For those like me who will not read that wall of text you need to hook them early.

@James Kendall Thanks for posting this. 

Frankly, most people won't read the whole report (myself included). In a world where we are bombarded by data tsunamis, so most people just want the pertinent information teased out of a report. 

In addition to the graphic, you might want to include a summary section at the beginning. More importantly, I think you should offer owners something personal and tailored to them such as a free evaluation of their property compared to other buildings and what it will sell for if they were to consider selling. Try to get FaceTime with the owners when delivering the report. 

Hope this helps. Good luck. Thanks! - Ola

@Anthony Dooley I hear you. This report is going to be emailed and then mailed to them along with a bombardment of information in a package. The host of printed materials help set me apart and build my credibility. I don't expect them to read all of what I send them, but I do want to ensure that I'm providing valuable information. See below for my call action that is at the end of the report that I didn't post in the original post. We're thinking along the same lines. :)

@Omar Khan I'll keep trying until I find what works! You can be sure of that!

@Juan Vargas Great idea, thank you!

@Larry T. Do you think I should change the title of the report from "Are You Leaving Money on the Table?"?

@Ola Dantis I agree, the below text is actually at the end of the report, I just didn't include in in the original post. Do you think part of it should be near the beginning? 

"WHAT DO YOU DO NEXT?

If you’re looking for the most stress-free way to increase your cash flow on your commercial property, please reach out to me at XXX-XXXX or send me an email at ____ to schedule a no cost, no obligation, Cash Flow Consultation with me. Given scheduling and time constraints, I am only able to offer seven consultations per month, and they generally fill up fast.

During our first meeting we’ll sit down and briefly discuss your building, it’s position in the market place, and brainstorm on additional strategies for improving your cash flow. I am also able to offer a Marketplace Property Analysis that can give you a general idea of what your building’s current market price is, and what it could potentially be after implementing some of these strategies. This audit is a blend of financial underwriting, some economic forecasting about where the market is going, and a gut feeling about your property.

THANK YOU

Thank you for spending these few minutes with me while reading my report. It is my sincerest hope that you found value in it and can utilize these strategies right away to start seeing results. I hope that you appreciate the spirit of this report and recognize its value as a commercial property owner. My intention is that you benefit from the information outlined in it by increasing your cash flow, and that I am able to have the opportunity to demonstrate my expertise and knowledge so that if and when the time comes for you to make a change regarding your commercial property, I will have hopefully earned the privilege of competing for your business."

@James Kendall Yes, I'd move it to the top and break it up into short paragraphs. Also, you can have subheadings such as How Can I Serve You? and My Free Service. Something along those lines... 

@James Kendall   One man's opinion here.  WAY too much information for a first contact.

At this point, you have not yet established credibility or a relationship.  This is not the time to bare your soul or to do a data dump.

You need something MUCH more brief that would not come across as spammy or click-baity.   Something that would make your prospect think that it's worth his or her time and effort to read all that.  But at this point, you haven't earned the right to ask for that much time from him.

@James Kendall . Great information. However I doubt anyone would read it from top to bottom. I think you should and find a way to shorten it and provide more graphic, as has been suggested by some already.

@Charlie MacPherson @Henri Meli

Thank you for your feedback.

I'll be mailing this out and or handing out physical copies. I'm realistic about how much people will read. I'm offering free valuable information that some will appreciate and some won't. Great to hear everyone's opinion here though!

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