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In commercial real estate, smart owners are exploiting every available opportunity to maximize their net operating income (NOI) and create new, leveraged wealth. Over time, small changes can generate millions of dollars in cash flow and added value, which will be critical as you grow your CRE portfolio.
Since closing my first deal at age 18, I have built 18 years of success as a professional CRE investor with the help and guidance of mentors who are legends in our business. Here are some of my favorite and most effective insider tips for increasing your numbers.
Related: Tap into the wealth potential of commercial real estate with these 5 tips
Almost every type of home has an area of 24 square meters that can be carved out with minor modifications. If your property has a commercial frontage or is located in a high-traffic pedestrian area, consider creating space for an ATM.
In most US markets, average ATM space is typically rented for $500-$1,400 per month (as of the date of this publication) and requires an area of approximately 4’x6′. That’s at least $6,000 in annual income for 24 square feet (or $250 per square foot).
In high foot traffic areas, an ATM lease can bring in $1,200-$1,400 per month, which translates to an increase in equity to $420,000. Talk to your local bank about placing an ATM in your location. Property owners may also choose to install an ATM themselves and collect fees for ATM withdrawals, but such an operation requires hands-on management.
2. Vending Machines
While cash flow may seem negligible, vending machines can add a surprising equity boost to a company’s bottom line. Newer, more automated machines with card readers are more desirable. It’s easier to track income and profit with credit-debit purchases than with cash.
You can buy or lease machines. Monthly leases can start at around $50 per month. For most products, the profit is around 50%. With two vending machines, one for snacks and one for soft drinks, you could sell about 300 items per month at an average profit of $0.75 per item. That’s gross income of $225 per month and net income of $125 per month (minus the $100 lease). While a $1,500 net annual income hardly seems worth it, that’s a potential $20,000 net capital gain for the property.
There are many manufacturers who sell, finance or lease the equipment. Whether you choose to buy or lease, there are reputable suppliers who offer state-of-the-art machines at favorable conditions. Third-party suppliers will also rent space in your home and handle all storage and maintenance for you.
Related: How to start investing in rental properties – your step-by-step guide
3. Coin operated laundry
In older apartment buildings without washer and dryer hookups in every unit, property owners may be able to convert additional or otherwise unused space in the building (such as a basement) into a coin-operated laundry facility.
While renovating an old student apartment building near NC State University, we converted an empty crawl space into a laundry room with four coin-operated washers and four dryers. I had 24 units in the building, most of which were two bedrooms, so about 48 residents. This simple amenity generated more than $1,000 a month. The extra $12,000 a year meant an immediate capital gain of more than $200,000.
Most suppliers offer financing or leasing options for laundry equipment, so you can get started with little of your own money. Coin-operated washers and dryers can also be purchased from major home retailers, through Amazon, or directly from appliance manufacturers.
I’ll give you a personal example: I bought a meetinghouse a few years ago for $860,000. The building is 6,000 square feet and is located on a busy corner near many shops and where parking is scarce. I bought it for the value of the land with the intention of demolishing the building and developing a five-story mixed-use property. The existing building came with something special for the neighbourhood: an underground parking garage with 21 spaces.
Knowing that the new construction would take years, we rented out the parking spaces to pay the property taxes and transportation costs. With 21 spaces rented to nearby businesses for $100 per month per space, we generated $2,100 in monthly revenue, covering nearly half of the $4,500 mortgage.
If we kept the building as a rental property, the additional $25,200 per year translates to $560,000 in Additionally equity in the building (at a cap rate of 4.5%) — accounting for two-thirds of the $860,000 I paid for the entire property. While it may be difficult to purchase a stand-alone parking lot due to land demand, you can look for homes in infill locations with additional street parking. This additional source of income can provide a welcome boost to your bottom line.
Related: 6 Important Questions You Should Always Ask Before Investing in a Commercial Real Estate Property
5. Mobile cell towers on the roof
A cell tower only needs 50 square feet for installation. One rooftop tower can support as many as five carriers and 15 other digital antennas, generating up to $12,000 – $15,000 in gross monthly revenue. That’s $6,000 – $7,000 in monthly income on a 50/50 split with the supplier. The additional $72,000-$84,000 per year would result in an increase in equity for the property from $1.4 million to $2.1 million, often with no out-of-pocket costs.
Start by contacting American Tower, SBA and Crown Castle – the largest tower suppliers in the US – to gauge demand for a tower on your property and get competitive offers. Most will structure their lease payments as an income split across AT&T, T-Mobile, Verizon and other carriers’ earnings.
6. Free-standing cell towers
Almost all suburban developed properties have a 100’x100′ space where a freestanding cell tower can be placed. I’ve even seen some on footprints as small as 50’x50′. Dimensions, location and destination are dictated by local ordinances, but if you can carve out a 5,000 to 10,000 square foot section, a cell tower could potentially generate more monthly income than the property itself.
Rental income or profit sharing on a traditional cell tower can range between $3,000 and $8,000 per month based on population density. Even nominal income from a cell tower lease can have a major impact on your equity position and recapitalize it in the event of a sale. Similar to rooftop antennas, cell tower installers and operators can tell you if there is a need for additional coverage where your property is located.
Here’s the beauty of real estate: Small changes in cash flow make for huge differences in property valuation, equity, and owner’s equity.