Category: Income Property

In this article, we’ll review Return on Investment (ROI) and how financial returns are analyzed when investing in real estate.

ROI can be a confusing term for many real estate investors and those interested in investing in income producing property, otherwise commonly referred to as commercial real estate investment. What is a commercial real estate investment? It’s financial investment in those properties generally providing monthly income from ownership in multi-residential apartments, office buildings, industrial use, property, warehouse, strip retail centers or free standing retail. These properties generate monthly income that is used by the owner to pay down debt (mortgages) and all other monthly expenses such as property taxes and insurance and when done right, cash flow. The investment provides cash flow, principal pay down, and tax benefits for the investor.

The ROI is generally viewed as the annual or longer period financial benefit “return” provided from the investment in relation to the down payment and other costs needed to purchase the property. One should also consider the time involved to manage the asset. To determine ROI for any real estate investment, some facts and assumptions or “weighted” concerns, are made by the investor. For instance: what is a competitive (reasonably expected) gross annual income from the property, how much vacancy will the property experience annually, what will it cost to own the property, how will tax laws effect my investment and what type of appreciation may I expect given the timing and location of the investment?

To drill down further, it’s important to note the weighted concerns change based on timing, location and type of investment to name a few. For example: depending on the location and type of investment, a differing emphasis will be applied to the ROI formula appreciation expectations. For example, in an area like San Jose, CA an investor will heavily weight the ROI expectation with investment appreciation, but in rural America, annual cash flow from the investment will be more heavily weighted to determine ROI. The reason for this difference is simple, In San Jose, not many buildings (no land for new construction) can be added to the region…this forces those requiring a commercial facility to pay more to the existing property investor/landlord, driving property value higher. In Rural America, annual cash flow is more important because once property demand outstrips supply, generally, commercial property can be added to the region since land is available for new construction. However, new construction is not warranted until rents and ROI’s exceed costs associated with new construction. Cash flow is more important since new construction is available as an option going forward.

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WRITER:Uncle Real Estate is a real estate broker in California. He is a real estate investor in California since 1989.

Uncle Real Estate is happy to help

Have you ever wondered how to obtain your first ever income property?

Would you like to review some first time income property buying strategies that work?

Hint: The actions required to buy your first income property are very similar to how you will purchase your second, third and fourth income property. So let’s focus our attention on the most important purchase ever…your first income property purchase. We will begin by deciding what type of property you want to buy. Your positioning will be adjusted based on the desired property type you are searching for. What type of property would you like to own? I’ve been fortunate to have purchased income property by both stumbling into position and by dogged determination. The odds of success increase substantially if you use the dogged determination strategy.

Common Types of Income Property

1. Rental Home

2. Apartment building 2-4 units

3. Apartment building more than 5 units

4. Heavy or Light Industrial use buildings/property

5. Retail strip centers, anchored shopping centers

6. Office buildings

7. Storage facilities

8. Single, unit, free standing commercial

As a first time income property buyer, you will need to be “in position” to succeed with your real estate investment purchase. Do you realize that means YOU must be looking for the property every day even hourly at times, and at the very moment you locate the right property, you must pounce before losing out to someone else. It’s critical for you know and understand value so that you can move quickly with confidence. Remember, it’s easy to be in position to buy something that is not a quality income property because no one else wants it. However, to be in position to purchase a well-priced, well-located, desirable income property is challenging because there is a lot of competition in the world for the same type of property. With Employee Pensions disappearing for workers and 401 K’s getting punished every so many years by Wall Street money types and various emotional economic forces, individuals are trying to build retirement through income property. The challenge to create a quality retirement has made the income property playing field very competitive.

What does being “in position” mean?

Being “in position” is different for everyone, but there are some similar characteristics and a way to optimize your position. That’s right, every first time buyer can maximize his or her own position for the ultimate opportunity to buy. You want to be as ready as possible to impress the seller with an offer in a timely manner. Each real estate investor is unique in their preparation to purchase a property. For one buyer, being in position to buy is having a lender pre-qualification letter in hand and a real estate agent looking for the property on their behalf, for another buyer, being in position is having all cash on hand and doing much of the ground work themselves.

What are the Characteristics of being in position to buy??

1. Identify the type of property you wish to own.

2. Limit your search area to three locations within one hour of you if possible. (the closer the better)

3. Have a relationship with a loan agent/lending institution where your loan application documents have been submitted for loan approval.

4. Create a relationship with a quality real estate agent in each location you are searching.

5. Be placed on a “search criteria” email list with each agent working for you.

6. Understand the numbers and locations you’ve identified better than the competition.

7. Be mentally prepared to say “yes” to writing an offer if the right property hits the market.

8. Be aware of professionals that will help you determine the condition of the improvements.

9. Understand what is required by local county, or cities to review existing property files on record.

10. Become familiar with city and county staff operating planning and building departments.

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WRITER: Uncle Real Estate is a real estate broker in California. He has been a real estate investor in California since 1992.