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An investment property is "Upside Down" when the owner owes more than the property is worth, which is something that many residential owners understand at the moment. This may be bad for the owners, but for investors these points of weakness in the property can sometimes be improved, adding value and rewards.
The search for "Value Add" properties with Upside is what drives certain commercial property investors to ferret out tarnished, tainted or downright tawdry properties and become rehabilitation or repositioning experts. When you turn around properties with significant challenges, you can see annual returns of 30% and much more for your efforts.
Go looking for trouble
That's right: You are looking for properties with problems. Just make sure they are ones you can successfully address.
If you find a property with a vacancy rate of 15% in a market where the average is 5%. You may have some Upside available to you there, but it depends on whether you can actually bring the vacancy rate down to the market rate once you are the owner. If you do, you are assured a major return boost for your efforts.
Upside is a Three Step Process
1) Find the Problem
It isn't that hard to find problems in an ugly old strip mall or apartment complex with a bad reputation and a very motivated seller. Finding the problem is step one. This is the easy part.
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Author: Dike Drummond
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