Anyone here ever flipped commercial?

6 Replies

I imagine the deals are harder to find than residential?

How did it go?

@Patrick Philip Never "flipped" commercial, myself, but I have lots of experience in various capacities as a Commercial Consultant including Legal, Brokerage, Due Diligence, and Development. Your first problem with "flipping" Commercial (and the reason that I guess I find myself riling at the concept at first blush) is that commercial property values are determined by NOI, and without tenants, you have no NOI.

What I mean is this: Unlike, a residential property which is expected to be improved to a certain level of finish and then sold vacant, a commercial property is expected to be above that level of finish and sold occupied. This means a "Flipper" has three difficult jobs: (1) Finding the property undervalued, (2) (Usually) improving the property to get the best possible tenant in there, and (3) actually finding the tenants and getting them under contract prior to selling it, again, based on that NOI.

Exceptions are out there-- long-held mom & pop neighborhood strip malls or small office assets,  properties in areas that are quickly improving or where all of a sudden a major employer happens to be entering the vicinity, and you are the first one with the info, etc.  but generally speaking it's that brokerage & occupancy piece that can trip up someone who treats a commercial revitalization as though it were a 'simple flip.'  

My own thoughts when all else is equal, (e.g., no historic property issues, zoning is reasonable or favorable, and there aren't a ton of depreciating assets abound,)  I'd rather raze the existing structure, perform a highest & best use analysis, and build anew than try to 'flip' a property within the same asset class.  Generally speaking, it's been underperforming for a reason that's above the level of "ugly" or not-maintained.  

Hope that helps in some way.  If you have specific questions, I'd be happy to respond. 

Originally posted by @Steve McGovern :

@Patrick Philip Never "flipped" commercial, myself, but I have lots of experience in various capacities as a Commercial Consultant including Legal, Brokerage, Due Diligence, and Development. Your first problem with "flipping" Commercial (and the reason that I guess I find myself riling at the concept at first blush) is that commercial property values are determined by NOI, and without tenants, you have no NOI.

What I mean is this: Unlike, a residential property which is expected to be improved to a certain level of finish and then sold vacant, a commercial property is expected to be above that level of finish and sold occupied. This means a "Flipper" has three difficult jobs: (1) Finding the property undervalued, (2) (Usually) improving the property to get the best possible tenant in there, and (3) actually finding the tenants and getting them under contract prior to selling it, again, based on that NOI.

Exceptions are out there-- long-held mom & pop neighborhood strip malls or small office assets,  properties in areas that are quickly improving or where all of a sudden a major employer happens to be entering the vicinity, and you are the first one with the info, etc.  but generally speaking it's that brokerage & occupancy piece that can trip up someone who treats a commercial revitalization as though it were a 'simple flip.'  

My own thoughts when all else is equal, (e.g., no historic property issues, zoning is reasonable or favorable, and there aren't a ton of depreciating assets abound,)  I'd rather raze the existing structure, perform a highest & best use analysis, and build anew than try to 'flip' a property within the same asset class.  Generally speaking, it's been underperforming for a reason that's above the level of "ugly" or not-maintained.  

Hope that helps in some way.  If you have specific questions, I'd be happy to respond. 

Thanks, you pretty much explained it. You can improve the value by finding good tenants. 

That's a lot harder than SFH flips, which also means it's more risk/reward/potentially profitable than SFH flips.

Not that SFH flipping can't be profitable.

That's a lot to think about, and may be impossible to get into even if you spend all day thinking about it.

Originally posted by @Patrick Philip :
Originally posted by @Steve McGovern:

@Patrick Philip Never "flipped" commercial, myself, but I have lots of experience in various capacities as a Commercial Consultant including Legal, Brokerage, Due Diligence, and Development. Your first problem with "flipping" Commercial (and the reason that I guess I find myself riling at the concept at first blush) is that commercial property values are determined by NOI, and without tenants, you have no NOI.

What I mean is this: Unlike, a residential property which is expected to be improved to a certain level of finish and then sold vacant, a commercial property is expected to be above that level of finish and sold occupied. This means a "Flipper" has three difficult jobs: (1) Finding the property undervalued, (2) (Usually) improving the property to get the best possible tenant in there, and (3) actually finding the tenants and getting them under contract prior to selling it, again, based on that NOI.

Exceptions are out there-- long-held mom & pop neighborhood strip malls or small office assets,  properties in areas that are quickly improving or where all of a sudden a major employer happens to be entering the vicinity, and you are the first one with the info, etc.  but generally speaking it's that brokerage & occupancy piece that can trip up someone who treats a commercial revitalization as though it were a 'simple flip.'  

My own thoughts when all else is equal, (e.g., no historic property issues, zoning is reasonable or favorable, and there aren't a ton of depreciating assets abound,)  I'd rather raze the existing structure, perform a highest & best use analysis, and build anew than try to 'flip' a property within the same asset class.  Generally speaking, it's been underperforming for a reason that's above the level of "ugly" or not-maintained.  

Hope that helps in some way.  If you have specific questions, I'd be happy to respond. 

Thanks, you pretty much explained it. You can improve the value by finding good tenants. 

That's a lot harder than SFH flips, which also means it's more risk/reward/potentially profitable than SFH flips.

Not that SFH flipping can't be profitable.

That's a lot to think about, and may be impossible to get into even if you spend all day thinking about it.

Flipping apartment communities is done all the time and it's a lot easier to flip one XXX unit community than it is to flip XXX SFRs (pick whatever number of units you want).

Originally posted by @Mike Dymski :
Originally posted by @Patrick Philip:
Originally posted by @Steve McGovern:

@Patrick Philip Never "flipped" commercial, myself, but I have lots of experience in various capacities as a Commercial Consultant including Legal, Brokerage, Due Diligence, and Development. Your first problem with "flipping" Commercial (and the reason that I guess I find myself riling at the concept at first blush) is that commercial property values are determined by NOI, and without tenants, you have no NOI.

What I mean is this: Unlike, a residential property which is expected to be improved to a certain level of finish and then sold vacant, a commercial property is expected to be above that level of finish and sold occupied. This means a "Flipper" has three difficult jobs: (1) Finding the property undervalued, (2) (Usually) improving the property to get the best possible tenant in there, and (3) actually finding the tenants and getting them under contract prior to selling it, again, based on that NOI.

Exceptions are out there-- long-held mom & pop neighborhood strip malls or small office assets,  properties in areas that are quickly improving or where all of a sudden a major employer happens to be entering the vicinity, and you are the first one with the info, etc.  but generally speaking it's that brokerage & occupancy piece that can trip up someone who treats a commercial revitalization as though it were a 'simple flip.'  

My own thoughts when all else is equal, (e.g., no historic property issues, zoning is reasonable or favorable, and there aren't a ton of depreciating assets abound,)  I'd rather raze the existing structure, perform a highest & best use analysis, and build anew than try to 'flip' a property within the same asset class.  Generally speaking, it's been underperforming for a reason that's above the level of "ugly" or not-maintained.  

Hope that helps in some way.  If you have specific questions, I'd be happy to respond. 

Thanks, you pretty much explained it. You can improve the value by finding good tenants. 

That's a lot harder than SFH flips, which also means it's more risk/reward/potentially profitable than SFH flips.

Not that SFH flipping can't be profitable.

That's a lot to think about, and may be impossible to get into even if you spend all day thinking about it.

Flipping apartment communities is done all the time and it's a lot easier to flip one XXX unit community than it is to flip XXX SFRs (pick whatever number of units you want).

Do you find the deals on the MLS? None of the wholesalers I use ever have apartment listings.

Originally posted by @Patrick Philip :
Originally posted by @Mike Dymski:
Originally posted by @Patrick Philip:
Originally posted by @Steve McGovern:

@Patrick Philip Never "flipped" commercial, myself, but I have lots of experience in various capacities as a Commercial Consultant including Legal, Brokerage, Due Diligence, and Development. Your first problem with "flipping" Commercial (and the reason that I guess I find myself riling at the concept at first blush) is that commercial property values are determined by NOI, and without tenants, you have no NOI.

What I mean is this: Unlike, a residential property which is expected to be improved to a certain level of finish and then sold vacant, a commercial property is expected to be above that level of finish and sold occupied. This means a "Flipper" has three difficult jobs: (1) Finding the property undervalued, (2) (Usually) improving the property to get the best possible tenant in there, and (3) actually finding the tenants and getting them under contract prior to selling it, again, based on that NOI.

Exceptions are out there-- long-held mom & pop neighborhood strip malls or small office assets,  properties in areas that are quickly improving or where all of a sudden a major employer happens to be entering the vicinity, and you are the first one with the info, etc.  but generally speaking it's that brokerage & occupancy piece that can trip up someone who treats a commercial revitalization as though it were a 'simple flip.'  

My own thoughts when all else is equal, (e.g., no historic property issues, zoning is reasonable or favorable, and there aren't a ton of depreciating assets abound,)  I'd rather raze the existing structure, perform a highest & best use analysis, and build anew than try to 'flip' a property within the same asset class.  Generally speaking, it's been underperforming for a reason that's above the level of "ugly" or not-maintained.  

Hope that helps in some way.  If you have specific questions, I'd be happy to respond. 

Thanks, you pretty much explained it. You can improve the value by finding good tenants. 

That's a lot harder than SFH flips, which also means it's more risk/reward/potentially profitable than SFH flips.

Not that SFH flipping can't be profitable.

That's a lot to think about, and may be impossible to get into even if you spend all day thinking about it.

Flipping apartment communities is done all the time and it's a lot easier to flip one XXX unit community than it is to flip XXX SFRs (pick whatever number of units you want).

Do you find the deals on the MLS? None of the wholesalers I use ever have apartment listings.

commercial real estate brokers/their email blasts/their websites/loopnet/direct mail

@Patrick Philip Multi-family deals can be found with local realtors who specialize in commercial, or through national brokerages. Alternatively, you can find some on zillow, or realtor.com

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