Forced Appreciation: 4 Ways to Make the Force Be With You
Interested in maximizing your property’s value like a Jedi?
Sure you are. Especially if you own commercial property where your appraised value is mostly based on net operating income.
So let me share this, whether you are aware or not, you’re entangled in an intergalactic game of trying to increase your net income before your chosen time is up (time to sell).
I’m no Yoda, but I know you’ll be victorious if you follow this path.
In commercial real estate, your property value can be computed by dividing your annual net operating income by a capitalization rate. That’s nice but it gets better.
This evaluation method opens a wealth creation phenomenon that’s more powerful than compounding interest! Using the capitalization method, small increases in your net income FORCE large increases in your property’s evaluation.
That’s the FORCE and we investors love it!
However; not all income streams are created equal. Some dollars are worth chasing more than others.
The income that can be transferred to a new owner is superior to the income generated by your business savvy. So whereas you shouldn’t turn away any dollars, you should pick your strategy wisely if you want to grow strong in the Force.
Ways to Use the Force
You want to boost your net income in a ways that a commercial appraiser will ratify. You can do this by:
a) Showing a track record for your side income and trying to persuade appraiser the trend will continue
b) Producing contractual agreements that can transfer to the buyer
But before you use the force, you need to cultivate it.
Here’s a quick overview to illustrate that ancillary income strategy should be tied to your exit strategy.
4 Ways to Grow Strong in the Force
Pick from one of the following bins to grow strong in the FORCE:
Bin #1: If you want to see an immediate profit then consider:
- Payday rent schedules
- Broadcasting ground lease (your asset is the long-term lease agreement)
- Charging Pet Fee/Rent
Bin #2: If you want to break even within 2 years, consider:
- Short-term rentals (rentals with terms 30 day and less )
- Corporate housing (furnished rentals of 30 days and more)
- Bicycle rentals
Bin #3: If you can wait 3 or 4 years for payback, then consider:
- Adding mini storage units
- Boutique Housing
- Streaming your views (Live cam) and selling banner advertisements
Bin #4: If you can wait 5 or more years, then investigate:
- Transportation options (rent vehicle as part of your housing package)
- Alternative energy i.e., solar or wind
- Becoming a private lender to your qualified tenants
You can find mini-business plans for all these ideas and many others in my book: 40 Ways to Increase the Net Income of Your Rental.
- You should try to increase your ancillary income but don’t tackle projects that won’t payoff in the time you need them to.
- There is a large array of choices for boosting your cash flow; it’s inexcusable to do nothing.
Select tactics from the bins that fits you best and may the Forced Appreciation be with you :^)
Bio: Al Williamson is a civil engineer, the author of 40 Ways to Increase the Net Income of Your Rental Property, and the founder of LeadingLandlord.com. Al’s passion is helping rental owners increase their income and reduce their expenses. Follow his experiments as he tries to increase the net income of his apartment building by 4x.