Seeing The Potential
Is it worth buying a neglected commercial property, if you should happen to see one for sale? The answer is always “that depends”. And the one thing on which it depends most is your set of investment objectives. Raw land development would be an appealing prospect but LOKK Legal is located in San Diego County, where there is essentially no more raw land to exploit, starting afresh is more likely to mean demolishing or refurbishing the old buildings.
There is extra risk when a site requires demolition and clearing before construction can commence. Again, this may be another source of risk but also one that can be factored into negotiations for a discount to the full market value. So when you look at a run down or neglected commercial building with a “For Sale” sign don’t immediately discount it from your prospecting list. It may require imagination, patience and expert services in construction, law and architecture but if you persevere it may yield much higher value, once your vision has come to life.
The Greater The Risk And The Reward
The traditional rule of thumb has been that the profit you realize should be around 20% of the completed value of the project. If you have the right financing this can be leveraged to provide a significant return based on the actual equity investment that you made at the start.
The price should be set based on the condition and what it takes to bring it to core value condition. Purchase with a purpose if you can get the right price. If you choose the right location you can create something that will compliment the neighborhood and that will serve to add value to the community as a whole, which can serve to develop good will and influence that may be useful in the future and rewarding in its own right.
Always Be Prepared To Walk Away
In the book Real Estate Riches, Dolf de Roos says that you should be prepared to look at one hundred properties before you find the right one. Buy based on hard dollar calculations not on emotions. But if you can be open minded enough to see past a derelict exterior and you are willing to risk the losses when a deal goes bad then you might be in the right state of mind to refurbish a neglected property. Your reward for this risk is that it accrues the largest portion of value to you when it is successfully completed.
Such high-risk versus high-return deals require patience and professional savvy. There is value to be found but you have to be extra careful that all of the terms and conditions of the transaction are above board and equitable. Make certain that you have the right legal advice before you proceed with any transaction so that it enriches you and the community in which you have chosen to make your mark.