Highest and Best Use

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Real Estate

As a real estate investor, when you purchase a piece of real estate, the first decision to consider is the highest and best use of the property. Many investors though immediately think to improve the property as it is currently being used. That may improve the value but if the property was converted or replaced with another type of real estate that is better suited for the area, that would improve the value exponentially.

Research the Area
An investor should make a thorough examination of the area to determine what the area needs. Does it need more housing? Is it lacking restaurants or retail spaces? What about parking? Being well aware with the community’s demands and needs is crucial when determining a property’s highest and best use.

Calculate the Returns
Converting or replacing a piece of real estate is an expensive endeavor. An investor needs to calculate all of the costs involved with the project as well as the loss of income it will cause during the construction and how long it will take to recoup these costs. Determining the amount of income the new property will generate is key. Will all of the time and money to convert or replace be worth it in the long run? What will be the return on investment?

Determine if Possible
Local regulations may restrict the change of use of a property. Local guidelines should be reviewed and then the local agency should be contacted to confirm that a change of use will be approved. This may require a formal process which could need architectural drawings, environmental impact studies, etc. A lot of money is often paid upfront to determine if a piece of property can be altered and there is no guarantee that it will be granted.

Get Professional Help
There is so much to know when determining highest and best use and then applying for the change of use. A commercial real estate agent, a real estate attorney and a developer are just a few of the professionals that can assist.

As you can see, this is a big decision but one that could have a big payoff as well!