Six Tips for Flipping Commercial Real Estate

Flipping has steadily gained over the past decade as a clever means to earn a hefty profit from low-value properties. However, flipping is no more only about residential properties. Another promising and less saturated option is the flipping of commercial real estate. Connect to VP Capital Lending for Fix and Flip loans and receive funds in as little as 10 days.

 

According to the real estate and investment firm CBRE, the commercial sector is recovering as more offices start hiring again, changing retail operations need more space, and limitations are relaxed. Recently, there has been such a high demand for commercial space that, according to a Wall Street Journal study, commercial real estate sales are even back to their pre-pandemic levels. Here are some useful pointers to keep in mind to increase your chances of succeeding with a commercial real estate flip.

 

1. Build Your Network

 

When flipping commercial real estate, looking for property owners with financial difficulties is the simplest approach to finding deals. First, establish connections with real estate lawyers who may inform owners of commercial properties in difficulty about potential deals before they are listed. Banks that own commercial real estate in crisis are another source of leads because they are frequently ready to sell and avoid the high costs of a foreclosure.

Commercial realtors, brokers, and leasing agents are reliable sources of knowledge regarding regional commercial real estate markets when it comes to selling. Additionally, they can aid in finding tenants and buyers.

 

2. Understand Commercial Property Types

 

Local supply and demand determine commercial property values and rental rates. For example, few commercial properties are available in areas with high demand for space, which supports growing values and high rental rates—the perfect formula for commercial real estate flipping. Instead, look for commercial buildings in an area with little vacancy and little room for additional construction.

3. Understand Commercial Property Values

 

In contrast to single-family residences, commercial properties are assessed using various methods, focusing on their cap rates, gross rent multipliers, and cash-on-cash returns.

 

Cap Rates
 

The asset's price is divided by its net operating income to determine cap rates. For instance, a $1 million property that brings in $100,000 yearly has a cap rate of 10%.

 
Gross Rent Multipliers

 

The Gross Rent Multipliers metric is used to screen the bargain-priced properties relative to earning power. It is measured by dividing the property's sale price by the gross rental income.

 

Cash-on-Cash Returns

 

These are calculated by dividing the proper pretax cash flow by invested cash.

4. Consider A Buy-And-Hold Strategy

 

Leasing can be a better strategy than flipping if you purchase commercial property in the recovering market. It may happen because the property's value can increase substantially as the business climate improves. In addition, commercial real estate typically provides better cash flow and higher returns than residential properties.

Although the commercial lease is usually longer than residential ones, it creates more cash flow and lesser expenses.

 

5. Understand Commercial Real Estate Loan Terms

 

It is easier to finance a commercial property than a home because lenders have more flexibility due to fewer regulatory constraints. However, commercial real estate loans frequently have shorter periods (5–20 years) and balloon payments payable after 5 or 10 years. Therefore, when balloon payments are due, most investors renew the debt. However, if lending markets become tight, this method may backfire.

 

6. Expect A Longer Sales Cycle

 

The lengthier sales cycle for commercial properties is another significant distinction between commercial and residential flipping. For instance, flipping an industrial facility could take six months, an office space eight months, and a retail location twelve months. Consider this when deciding if flipping commercial real estate is your best strategy.

 
Flipping Commercial Real Estate with VP Capital Lending

 

The key to success in flipping commercial real estate depends on finding the right properties and the ability to spot bargains. If you have a property deal in mind and things about the best loan for flipping a house but don't have the cash to purchase it. Come to VP Capital Lending can help. We offer low-interest rates and a quick approval process.