Have you ever thought about the fact that all big things are made up small things?
A million dollars is just of bunch of dollars, a dollar is a bunch of pennies.
A year is a bunch of days which are made of a bunch of hours which are made up of a bunch of seconds.
Our world is made up of miles which are made up of inches. One of my favorite books, Chop Wood Carry Water , describes how success all comes down to inches. Although inches look small, enough inches can cover any distance.
While I may be stating the obvious, my point is when we look at the big things, we often lose perspective.
When we want to make major changes in our lives, we are often overwhelmed by looking at the big picture instead of focusing on the small changes we can make that will has massive impact over time.
It’s a lot easier to think about cutting out 200 calories a day than it is to think about losing 10 pounds.
It’s a lot easier to think about reading for 15 minutes a day than 30 books a year.
Adding value to real estate can work similarly. We all like to hear stories of people who created wealth by a sudden, massive break though.
In reality, creating value, wealth, and making impact happens by making small changes over time.
Making small changes can compound into massive results.
Small Steps, Massive Results
How does this relate to commercial real estate?
In commercial real estate, small changes can be made to a property to create value, increase returns, and have a lasting impact.
Here’s some examples:
Think about small additions to a property to increase returns
If a property was purchased for $250,00 and rents for $24,000 annually with annual expenses of $3000, the cap rate is 8.4%.
If a billboard was added to the property, and the billboard company paid $2000 per year on a ground lease, the cap rate would increase to 9.2%.
A billboard that costs the property owner nothing increased the cap rate by over 9.5%.
In this example, you are not spending money to increase your return. Someone else (a billboard company) is paying you to increase the return on your investment.
Another example is a laydown yard.
In the Upstate of South Carolina, laydown yard areas are in demand. If you own a vacant property or have excess land surrounding a building, consider if a laydown yard is a viable option. Take the small step to assess if an existing asset can be utilized in a way to produce cash flow.
In both of these examples, no major construction, renovation, or significant investment was made.
Think about small changes in negotiations that can increase returns
For example, one difference in lease terms can generate thousands of extra dollars over the life of a lease.
If an investor had $20,000/month in revenue from their current portfolio of properties, consider how including an escalation clause across all of their leases could make a sizeable difference in a property’s cap rate.
Think about actions a property owner can make to increase value
When we focus on the big picture, sometimes the details can get lost.
Instead of evaluating the financials, what if a property owner made the habit of physically riding by their properties once every few weeks or months?
For someone who has a property manager, what if an owner made one extra call to check in with their property manager every few weeks or months?
A property owner could check the news in the area where they are a stakeholder learn about new developments and how their property may be impacted.
Proactively acting on an issue, idea, or opportunity about an existing property could be just as impactful as a major new addition to a portfolio of properties.
Remember, the earth is made up of inches, a million dollars is made of pennies, and a year is made up of seconds. Small changes can have lasting impact.
In terms of commercial real estate, there are often small, overlooked improvements, details or habits that can be implemented to create value over time.
If you’d like to assess all the ways to increase the value of a property, discuss this blog or anything related to commercial real estate, let’s connect!
McDaniel and Company, Vice President