6 Overlooked Investment Opportunities in Commercial Real Estate
Smaller but consistent sources of income are often overlooked by property owners. From parking to vending machines, these profit-boosting assets can add up to millions in net value.
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In commercial real estate, smart owners exploit every available opportunity to maximize their net operating income (NOI) and create new, leverageable equity. Over time, small changes can generate millions of dollars in cash flow and added value, which will be critically beneficial as you grow your CRE portfolio.
Since transacting my first deal at age 18, I've built an 18-year track record 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 to help boost your numbers.
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Nearly every type of property has an area of 24 square feet that can be carved out with minor modifications. If you own property that has any commercial frontage or is located in a heavily trafficked pedestrian area, consider creating space for an ATM.
In most markets in the U.S., average ATM space will typically lease for $500-$1,400 per month (as of the date of this publication) and requires an area of approximately 4'x6'. That is at least $6,000 in annual income for 24 square feet (or $250 per square foot).
In areas with heavy pedestrian traffic, an ATM lease could bring $1,200-$1,400 per month, translating to an equity increase of up to $420,000. Talk to your local bank about placing an ATM in your location. Property owners may also choose to install an ATM machine of their own and collect fees on cash withdrawals, but such an operation requires hands-on management.
2. Vending machines
While the cash flow may seem negligible, vending machines can add a surprising equity boost to a property'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 either purchase machines or lease them. Monthly leases can begin at around $50 per month. For most products, profit is around 50%. With two machines, one for snacks and one for soft drinks, you could expect to sell approximately 300 items per month at an average profit of $0.75 per item. That's a gross income of $225 per month and a net income of $125 per month (minus the $100 lease). While a net annual income of $1,500 seems hardly worth the effort, that's a potential net equity gain of $20,000 for the property.
There are many manufacturers that will either sell, finance or lease the equipment. If you choose to purchase or lease, there are reputable vendors offering state-of-the-art machines with favorable terms. Third-party vendors will also lease space in your property and handle all the stocking and maintenance for you.
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3. Coin-operated laundry
In older apartment buildings without washer and dryer connections in each unit, property owners can potentially convert ancillary or otherwise unutilized space in the building (like a basement) into a coin-operated laundry facility.
During the renovation of an old student apartment building close to NC State University, we converted an empty crawl space into a laundry room with four coin-operated washing machines and four dryers. I had 24 units in the building, most of which were two bedrooms, so approximately 48 residents. This simple amenity generated more than $1,000 per month. The extra $12,000 per year meant an instant equity gain of over $200,000.
Most suppliers will offer financing or lease options for laundry equipment so you can get started with little capital out of pocket. Coin-operated washers and dryers can also be purchased from major home supply retailers, through Amazon or directly from equipment manufacturers.
I'll give you a personal example: I purchased a church building a few years ago for $860,000. The building is 6,000 square feet and sits on a busy corner near lots of retail and where parking is scarce. I purchased it for the land value with the intent to demolish the building and develop a five-story mixed-use property. The existing building came with something unusual for the neighborhood: an underground parking garage with 21 spaces.
Knowing the new development would take years, we rented out the parking spaces to pay the property taxes and carrying costs. With 21 spaces rented to nearby businesses at $100 per month per space, we generated $2,100 in monthly revenue, covering nearly half of the $4,500 mortgage.
If we were to keep the building as a rental property, the extra $25,200 per year translates into $560,000 of additional equity in the building (at a 4.5% cap rate) — making up two-thirds of the $860,000 I paid for the entire property. While it may be difficult to purchase a standalone parking lot due to the demand for land, you can look for properties in infill locations that come with extra off-street parking. This additional revenue source can provide a welcome boost to your bottom line.
Related: 6 Key Questions You Should Always Ask Before Investing in a Commercial Real-Estate Property
5. Rooftop cell towers
A cell tower requires as little as 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 extra $72,000-$84,000 per year would result in an equity increase for the property of $1.4 million to $2.1 million, often with no out-of-pocket cost.
Start by contacting American Tower, SBA and Crown Castle — the largest tower suppliers in the U.S. — to gauge demand for a tower on your property and try to get competitive offers. Most will structure their lease payments as a revenue split on the income from AT&T, T-Mobile, Verizon and other carriers.
6. Freestanding cell towers
Nearly 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 zoning are dictated by local ordinances, but if you can carve out a 5,000 to 10,000-square-foot section, a cell tower can potentially generate more monthly income than the property itself.
Rental income or profit sharing on a traditional cell tower can range between $3,000-$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 in the event of a sale. As with rooftop antennas, cell tower installers and operators can tell you if there is a need for additional coverage where your property is located.
This is the beauty of real estate: Small changes to cash flow create huge differences in property valuations, asset equity and the owner's net worth.