Economic conversion is used in one or a combination of the following Situations: I. The investor has a specific use in mind and looks for a property that will meet those needs. For example, some investors look for fast-food operations that have gone out of business because they have discovered that a conversion of that kind of location best suits their completely different business. Another developer is successful in converting large old homes into corporate offices. Another investor has found conversions of well-located apartment buildings into seasonal furnished rentals to be highly lucrative. Land developers prosper because they know how to turn vacant acreage into housing developments and commercial ventures. Each of these examples has its own nuances that the individual investor has tailored for his or her unique purpose of use.
2. An opportunity surfaces that If grasped will automatically increase the value of the property. This often means changing the zoning from one use to another to broaden the market appeal. but many times the zoning may already allow the new use. This occurs because many investors are visually oriented. They see a tract of land that is surrounded by single-family homes; therefore, they presume the land is zoned for single-family homes. However, the reality could be that the land has an Industrial or other commercial zoning.
Many investors specialize in taking a vacant tract of land, working through all the governmental paperwork to get approvals for a change of use, and then selling the property to developers who would rather pay a profit to the first investor because they can now move ahead into a ready-to-go property.
3. There is a change in market demands and reduced value of an existing properly. In this case, the owner should look for a new use or change in the existing use, or a new type or category of tenant that will increase the value of the property. For example. when a neighborhood declines, rents fall and property loses value. Property owners can become stuck in this kind of market condition and be unable to sell their property. It can be very frustrating to watch property values quickly erode, and most property owners feel there is little they can do except drop the price further. Continually dropping prices establishes a trend that can be very hard to stop, and the already declining neighborhood may decline even further. Worst of all. the few tenants you may have will become unhappy the moment they learn that you are offering space in the building at half of what they are paying. If your goal is to get rid of the tenants you have, that will surely do the trick. Mind you, your tenants may be part of your problem in renting the remaining space to start with. What the property owner should do is make a positive effort to find a use that stabilizes the decline. When this is done, the trend will be reversed and property values will start going up. In severe situations. this may require a collective approach with a block of property owners to find out what change would make a turnaround possible. Sometimes a rezoning will help.
4. There are community changes of any kind. Many types of change can create the need for different use and greater economic return because of it. New roads. bridges, airports. schools, hospitals. and so on all can have profound effects on the neighborhoods in the area-both positive and negative effects. The same increase in community infrastructure can cause some property values to go up and others to go down. A change in zoning may be the right step to stabilize or increase values. Because most infrastructure changes take a long time to occur, the investor who is well informed about future plans for the community can be ready to take advantage of opportunities long before they are visible to the general public.