Page 32 - Trump University Commercial Real Estate 101

TRUMP UNIVERSITY COMMERCIAL REAL ESTATE 101

That is a speculator ’ s game, and way too risky for my blood. If you
want to gamble, go to Vegas. If you want to make solid investments,
base them on actual results.
Back to forced appreciation: All you have to do is raise rents up to
market levels. You ’ ll first have to wait until leases expire, because leases

transfer with ownership. Apartments usually have one - year leases.
Office buildings and other commercial properties have 3 - year to

20 - year leases.
Here ’ s why raising rents also raises your property value: Commercial
properties are primarily valued on multiples of their cash fl ow. (There
are two other valuation methods that I discuss later in the book, but

cash flow is the main one.) This means that for each notch that you
raise your net operating income , you ’ ve just raised the value of your
property by multiple notches.

One of my favorite value plays is to find a property with higher -
than - normal expenses. Most properties operate with expenses of about
50 percent of gross income. When you see the actual financials of a

property with higher expenses, determine if you can lower those
expenses to the average level. (Later I show you how.) If you can, you
may have a winner on your hands. Without doing any signifi cant work
to the property, you can improve net operating income and truly
improve the property value.

Repositioning

This is a special type of value play, and one of my favorites. When you
reposition a property, you change the tenant base or signifi cantly alter
the appearance of the property. Sometimes you do both.
You may find a property that needs some tender loving care. We

call this deferred maintenance . Maybe it ’ s an okay property, but it hasn ’ t
been upgraded in over a decade. It may look tired and out - of - date.
There may also be the wrong type of tenant leasing the space.
Back when I was broke, I would visit a suburban strip mall in
Hingham, Massachusetts. Its anchor tenant (that is, its biggest store) was

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