This post is featured on behalf of Jenna Brown.
In the last decade or so, there has been a lot of attention paid to flipping houses. People find well-priced homes, do some high-value upgrades, and sell the properties for a profit. Many people have been very successful in their efforts.
But strangely, there has been less talk about the same process for commercial properties. Admittedly, most commercial properties are larger and more expensive than private homes, and there are fewer of them on the market.
But the process of purchase-upgrade-sell can be applied to commercial properties just as it can to residential properties, and the market can be friendlier because there are fewer other “flippers” bidding up the prices. It’s a simpler way to flip, and it can certainly reduce complications in your business.
There are a lot of reasons why commercial flips can prove more profitable than residential flips.
Upgrades to homes usually involve aesthetic choices, energy efficiency, and luxury provisions. The problem with these is that they are highly subjective, making a given improvement more valuable to some potential buyers and less valuable to others.
The point is that commercial flips can be more profitable because the upgrades being made will be more purposeful than personal, making it more accessible to potential buyers.
A house is a house. Its design, location, and zoning will make sure of that. Consequently, your only potential buyers are those who wish to buy a home, and other regulations may even preclude its use for rental.
Commercial buildings have a certain limitation, in terms of both zoning and the specific components that make it practical to serve a certain commercial purpose. The aforementioned restaurant is a good example; if it has ovens, walk-ins, grills, and so forth, it will be cost-prohibitive to use it for any other purpose.
But an open space has lots of options. It could become an office facility with cubicles, or remain open as a retail store. Mirrored walls and an upgraded floor could make it a dance studio. The list goes on and on.
Whatever the circumstances allow, you can get lots of flexibility with commercial property, opening it to more buyers and a better chance at turning a profit.
Knowledge is power. When you are trying to flip a residential property, you will, of course, check values, recent sales, and so forth. But so much of what a buyer is willing to give for a home is within his or her mind.
Commercial properties are different. As business investments, they have to make sense financially to the buyer. With the market information you can access, you will be able to determine the expected sale price for a property. Subtract your purchase price and you’ll see what is left to cover your profits and upgrades.
Additionally, you’ll know what a given location means in terms of value and potential purpose. Property in an industrial park will value differently (and to a different market) than property in the “restaurant row” area of a city. As a result, you’ll know more of what it’s worth.
Flipping commercial property has some key differences from residential, but for the right investor, it can be more predictable and more stable.