“Upside down” is when you owe more than the property is worth . . . and it feels like you’re hanging on your heels. Many homeowners understand the pain of being upside down right now.

What we all look for in Commercial Property is “UpSide”

“the other way around” it is a term for any additional profit increase you may find on your next commercial property. Any little thing you can do that will give you and your investors a little extra profit boost down the road.

Another term for this additional gain is “Value Added.” Add value and then reap the additional rewards.

Upside comes from a simple source. . . Problems you can solve. That’s how it is. . . You’re looking for troubled properties… just make sure they’re the ones you can successfully tackle.

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If you find a property with a vacancy rate of 15% in a market where the average is 5%. You MAY have some Upside available to you there. It all depends on whether you can actually bring the Vacancy Rate down to the Market Rate once you own it. And I assure you… when you do, there will be a great return on your efforts.

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Upside is a three step process It’s not that hard to find trouble in an ugly old strip mall or an apartment complex with a bad reputation and a highly motivated salesperson. Finding the problem is the first step. This is the easy part.

1) Find the problem

2) Fix the problem The $64,000 question is how can you fix it? And it can be worth MUCH more than $65K to you.

This is where you can lean heavily on your local team…especially your property manager.

Your property manager will know the neighborhood, market rents, and standard amenities for this area. They may know this building well…perhaps they even managed it in the past. You can sit down with them even before you submit a letter of intent and brainstorm an action plan to address the issues on this property and realize the silver lining.

Bail: Keep in mind. . . you are betting that you can fix a problem that the Seller couldn’t. Don’t get arrogant here. Make sure you and your property manager can see a step-by-step solution based on strategies the seller didn’t use or execute well.

3) Harvest the silver lining Remember the multiplier effect of the Capitalization Rate on any extra income you may retain on the property. The math is pretty simple.

Increase in Income / CAP Rate = Increase in Value

When you produce just $100/month in additional profit. . . adds a full $20,000 to property value at a 6% CAP rate.

$1200 (per year) / 6% CAP Rate (0.06) = $20,000 in Increased Value

Become an UpSide Hunter The search for “Value Added” properties with “Upside” is what drives certain commercial property investors to uncover tarnished, polluted or downright tacky properties and become experts in rehab or repositioning. When you trade properties with significant challenges, you can see annual returns of 30% and much more for your efforts.

It all starts with a simple question. . . The shortcut to finding additional profit on your next deal begins with a simple question to the listing agent,

“What is the silver lining of this deal?”

Here’s to a safe and profitable investment.

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