Build it, Renovate it, Fill it.These are the standard ways to add value to your commercial property or to pull equity out of your property.
Condo conversion is the most profitable way to add value to a commercial property. This allows you to cash out the equity without having to necessarily add extra value through renovations or additional building steps.
The condo conversion process is not for the faint of heart. The steps are complicated and time-consuming. But the rewards are great. Depending on the final goal of the conversion process you can withdraw the built-up equity of the property while you offload many of the expenses and headaches of property ownership to the new condo owners, all the while maintaining a stake in your property.
There are many ways to add value to a property. Below is a list you can start with:
The most common and simple way to add value is to increase income by filling vacancies or creating additional space to be rented. Increasing the gross income, obviously, increases your net income, which indeed increases the value of the property. This could also be achieved by renovating the building and charging higher rents upon lease renewal. Conversely, the best way to increase the bottom line might be to find ways to decrease expenses by operating the property more efficiently. The best example could be employing energy efficiency measures.
Change Of Use:
Another popular way to increase the value is to change the use to the best and highest use possible; for example, changing a building from residential to commercial use.
In some prime areas, multiple adjacent properties are acquired to build a multiple-unit property. For example, buying three adjacent detached homes to build ten townhouses. Thorough due diligence measures are required to make sure that the zoning allows for this type of development on the specified lots.
Divide And Conquer:
Buying a big lot and dividing it into smaller lots is an established way of increasing the value of a property. Basically, buying in bulk and selling at retail price.
This is the process of converting a property from one title to multiple titles to be sold separately. The process is similar to subdividing a big lot, but the process is a lot more complex. Examples could include converting an apartment building to condo residential, or office building to office condos and so on.
A property that has the potential for value growth through the change-of-use process of condo conversion is what we specialize in.
Watch a video, Jamshid Hussaini Discussing “Change Of Use” And How To Add Value To A Property.
A professional evaluation of your building will help you decide if the conversion to condominiums will help you to turn the equity you have in your property into profit.
James Hussaini leads the way with his experience in evaluating properties and he has an outstanding track record for the successful completion of many Toronto area buildings into condos.
What needs to be considered before the evaluation
Property ownership is a vehicle for creating income and wealth the standard way:
And it’s long term.
But what happens when you need to tap the equity of a property that has vacancies? Or has a large mortgage on it with little equity or income?
The solution is to convert the building into condos. This allows you to realize the equity you’ve built up and at the same time shift much of the expenses onto new owners that can afford a smaller piece of a property but not the whole building.
Evaluate Your Commercial Property Before Considering Condo Conversion
Generally speaking, two factors play a crucial role in evaluating a commercial property: income and capital gain.
Two Types of Economic Value:
From a very broad perspective, commercial properties can be evaluated by taking into consideration two factors: net income and capital gain. Here is a brief outline.
Net income refers to the overall income the property generates, considering both current net income and potential net income. Although there are discussions around the meaning of “net income”, “net net income” and “net net net income”, what it boils down to is that net income is the income a property generates after paying all its expenses such as property taxes, utilities, maintenance, etc. The net income is generally accounted for before paying debt (mortgage) and taxes (income tax).
In addition to hard numbers (net income), the existing and future income potential of the property is considered. In the near term, income potential can be predicted through change of use approvals by the local municipality. But it is quite challenging to predict the future potential of the property as it could depend on multiple factors such as economic growth and job creation, future development plans, etc. Again, assessing capital gain is a lot more complicated than it sounds, but suffice it to say that any potential the property may have in the future is to be considered at the time of evaluating the property.
Realizing the Highest Value
Once your evaluation is completed you can determine under which “change of use” the property can meet it’s highest profit potential. This complicated procedure should only be undertaken by a qualified specialist to ensure that anything that will impact the overall value has been taken into consideration. This can include (but not limited to):
We can help you add value to your property using the condo conversion change-of-use that we specialize in. We have the experience, and the professional team to back us up, that you need.
The condo conversion case study below is an example only and the financial structure is simplified in order to demonstrate how to move a property from its current status to a higher-value use. Everything in a project can go more or less as planned, but the final exit is what makes or breaks it.
Here is a snapshot of the team involvement needed to highlight the complexity involved:
Case Study: Converting an almost-vacant building
Background: The owner was busy operating a manufacturing business and didn’t have the time, resources or expertise to manage the building. As a result the office building was not tenanted and the owner desperately wanted to let go of a property that he considered a distraction and a headache. When I came into the picture, I evaluated the property and found that it did not meet my basic criteria. The current income could cover the expenses but not the mortgage I needed to take out on the building.
Financing: Leading the investor group, I worked with the owner to overcome the mortgage issue. As the property had no mortgage, we struck a deal where the owner would provide an interest-free VTB (vendor take-back) for 75 percent of the purchase price until the end of the condo conversion process.
Adding value to the property: This building, located in a suburban downtown area, had about 20% occupied space so filling the vacant space became the primary focus of adding value to the project. Completing the condo conversion and filling it with new owners is the main focus to improving its value and allowing my group of investors to realize profit on their investment.
Marketing the condo units: Once the conversion was complete, and because of the type of financing arranged, we were able to offer potential condo owners a “Free Rent” option that allowed them to purchase their condo space with no down payment and use the accrued rent over 5 years as their down payment towards purchase once they have arranged their mortgage for the balance of the purchase price. This created a “win-win” situation for my investors and the tenant owners.
Exiting profitably: As the building fills up with new tenants that have an agreement in place to purchase their condo units, the investor group can realize substantial profit. It needs to be noted that individuals involved need to be entrepreneurial-minded and understand the concept of risk and reward. They must be prepared, both financially and emotionally, for ups and downs in the business. The return estimated on this project is as follows:
As a property owner, we can help you realize the full potential of your property through our experience with the condo conversion process, from start to finish.
Believing education is power and has the ability to generate wealth – Jamshid has made a commitment to sharing his knowledge and expertise in the real estate.