Last week, I went over Key #2, so this week let’s learn Key #3 shall we?
Although there are many moving parts to apartment rehabbing, I have found through the years, common things that lead to great success. I follow these and implement them wherever I go. Here they are.
Five keys to successful commercial property rehabbing:
- Key #1: Make physical and cosmetic improvements to the property
- Key #2: You are in the construction business, so be good at it
- Key #3: Be in a strong location and know your market very, very well
- Key #4: Focus on the net operating income and know your cash position at all times
- Key #5: Have more than one razor-sharp exit strategy and be flexible to market changes
These 5 keys are simple to understand yet are very expansive in content. Read on.
Key #3: Be in a strong location and know your market very, very well
Here’s what I mean by strong location:
- Job stability and job growth is #1.
- Population growth shows sign of increase, stability, and growth.
- New construction or path of progress is evident.
Here is the perfect scenario you would want to be in:
The commercial property you have chosen to rehab has a great need for in the neighborhood. The area has a good reputation to begin with and is, in fact, an up and coming area. It’s been designated a “hot” area. You are in great position to “reposition’ this currently “C-class property” in an “A-class” neighborhood. That’s when you have the potential to make the greatest impact and profits. Look for these ideal situations where you can ride the “appreciation wave” of the neighborhood. Experienced professional property managers and commercial leasing agents tend to know where these areas are.
Public transportation must already exist:
The best and hottest neighborhoods for apartment rehabs move out from the core of the city along public transportation lines. Make sure your rehab runs along those lines.
Keep an eye on Wal-Mart and Starbucks
Wal-Mart and Starbucks have multi-million dollar demographics departments that research where people are and where most likely people will move it. How many Wal-Marts do you know of that have closed down due to the lack of business? Very, very few.
3 key questions in examining your market:
- Is there a demand for the product that my rehab will produce?
- If so, at what rent or lease rates?
- Is the market’s economy such that it will yield an income stream that’s reliable, high-quality, and durable, enough so that it’s worth the risk I’m taking?
Reputation of the property and market is more important than you realize:
Not knowing the reputation of a property and its neighborhood and how to deal with it can wipe out your rehab profits. If the property and neighborhood has a reputation of drugs and gangs to overcome, then no amount of rehab will cure the problem of bringing in high-quality, rent-paying, stable tenants. You will be fighting an uphill battle from day one for possibly years.
And next week, we’ll go over Key #4, another crucial step to riches in apartment rehabs.