If you’re a residential flipper you know it’s tough. You might even have cough from all the drywall you’ve inhaled and your hands might be scarred from carpet staples, not to mention the many sleepless nights each project brings in the end a few thousand dollars. What if I told you there’s a better way? Well there is. Thanks to the way commercial properties are valued, it’s possible to flip without the fix. And lucky for you, this article will show you what to look for in a deal and how Arizona commercial hard money lenderscan help.
Here’s how you can flip without a fix Arizona commercial hard money lenders:
No fix flips are possible thanks to the way commercial properties are valued, based on income produced and cap rate or:
• Income/cap rate= property value
In the simplest terms if you can boost the income generated by a property you can the resell it for a higher value without so much as breaking a sweat.
I’ll be using some math to prove my radical theory, so bear with me as I go over three hypothetical instances of no fix commercial flips. Please note for all these examples we’ll be considering a ten unit apartment complex wherein units are occupied, with each unit brining about 750 dollars in rent per month. The prevailing cap rate in the area is 10 percent, so this property is valued as follows:
• 72 K in annual income/10 percent cap rate= the property is valued at 720 K.
Here’s two no fix flip strategies we could use in this case.
• Raising rents to market value: What if average rents rose in the surrounding area by say 50 dollars a month? Meaning you could raise monthly rents on each unit to 800 dollars. Your current tenants might be willing to stomach a 50 dollar a month rent increase, or they might not in any case, lets see how the math pans out shall we?
• 77 K in annual income/10 percent cap rate= 770 K in new property value -720 K purchase price= final profits of 50 thousand dollars.
• Boosting occupancy: Arbitrarily raising rents without improving our hypothetical apartment complex might upset a few people. So perhaps a better strategy in this case would be to lock in two new tenants under long term leases, without raising rents on the other units. Let’s see how the math plays out:
• 90 K in annual income/10 percent cap rate= 900 K in new property value- 720 K purchase price= final profits of 180 thousand dollars!
In both these instances you wouldn’t even have to lift a finger and you’d still make money. You’d flip without the fix. Of course, both the above cases were purely hypothetical, but still you can see what’s possible.
Nevertheless, you might have noticed the purchase price of our hypothetical property of 720 thousand dollars. You probably don’t have that kind of money just lying around, so you’ll need a lender.
If you’re in the residential flipping business you probably know about hard money, and so you know hard money providers might be willing to finance these sorts of no fix commercial flips. Just note, whatever sort of property you’re flipping hard money still remains your best option.
So with a bit of know how about commercial property valuations and with the help of hard money you too can flip without the fix. If you’re a flipper in the Phoenix area why not contact, local hard money lender Level 4 Funding for all your commercial lending needs?
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22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.