James Hussaini, Real Estate Developer, Speaker and Author

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The Best Value-Adding Strategy

Property ownership is a vehicle for creating income and wealth the standard way:

  • Purchase a property
  • Put up a building
  • Fill it with tenants
  • Generate income as the mortgage is paid down

It’s simple, right?
And it’s long term.

But what happens when you need to tap the equity of a property that has vacancies? Or has a large mortgage on it with little equity or income?

The solution is to convert the building into condos. This allows you to realize the equity you’ve built up and at the same time shift much of the expenses onto new owners that can afford a smaller piece of a property but not the whole building.

Evaluate Your Commercial Property Before Considering Condo Conversion

Generally speaking, two factors play a crucial role in evaluating a commercial property: income and capital gain.

Two Types of Economic Value:
From a very broad perspective, commercial properties can be evaluated by taking into consideration two factors: net income and capital gain. Here is a brief outline.

Net Income
Net income refers to the overall income the property generates, considering both current net income and potential net income. Although there are discussions around the meaning of “net income”, “net net income” and “net net net income”, what it boils down to is that net income is the income a property generates after paying all its expenses such as property taxes, utilities, maintenance, etc. The net income is generally accounted for before paying debt (mortgage) and taxes (income tax).

Capital Gain
In addition to hard numbers (net income), the existing and future income potential of the property is considered. In the near term, income potential can be predicted through change of use approvals by the local municipality. But it is quite challenging to predict the future potential of the property as it could depend on multiple factors such as economic growth and job creation, future development plans, etc. Again, assessing capital gain is a lot more complicated than it sounds, but suffice it to say that any potential the property may have in the future is to be considered at the time of evaluating the property.

Realizing the Highest Value
Once your evaluation is completed you can determine under which “change of use” the property can meet it’s highest profit potential. This complicated procedure should only be undertaken by a qualified specialist to ensure that anything that will impact the overall value has been taken into consideration. This can include (but not limited to):

  • Proximity to amenities
  • School district and ranking
  • Rental demand
  • Financing options available
  • Traffic count and flow
  • Visibility
  • Adequacy of parking
  • Fiber-optic wiring
  • Accessibility (public transportation and highways)
  • Current rental vacancy
  • Common areas and facilities
  • Structural condition of the property
  • Ceiling heights
  • Loading docks
  • Drive-ins
  • Accessibility
  • Environmental assessment

We can help you add value to your property using the condo conversion change-of-use that we specialize in. We have the experience, and the professional team to back us up, that you need.