The value of real estate that generates business income

Real estate that generates business income

If you’re a real estate investor who wants a long-term investment with current income and appreciation on your investment, you know the value of income-generating property. Now may be the time of your life to invest in income-producing commercial property because prices are low but income and value are high. In today’s market, you can buy a property for twenty to forty percent or more for less than it sold for just three years ago, while earning the same or higher rents than owners received a short time ago. I call that a bargain. Here’s how you buy low to maximize your short-term and long-term return on your investment.

Commercial vs. Residential Income Generating Property

If you want to determine whether to buy residential properties (4 units or less) or commercial multifamily properties (5 units or more), consider the fact that residential financing is more difficult than ever, while there are down payment assistance programs and many other creative financing options. available for multi-family buildings. You may be able to buy an apartment or office building for little money or with a down payment. You should also consider that buying a building with many units is much more profitable than buying many properties. Which is better, a 12-unit building or 12 one-unit houses? Which is more profitable? The choice is yours.

Value Determination

Although we discuss which option is best for you, it all depends on the value of your investment. Before you buy any property, you need to access the value. Residential Real Estate value is based on the sale price of similar properties in the same area. This appraisal method is the sales comparison method. Commercial income producing properties also use the sales comparison method, but not as the primary determining factor. The predominant method of determining the value of income-producing property is the income method. The simplified Income Method is:

• Gross Potential Income minus a vacancy factor (5% to 10%) equals actual income.
• Effective rent less expenses (not including the mortgage) and repair and replacement reserves
• Divided by the capitalization rate of the type of property in the area.
• This gives you a value based on the property’s net income.

The income method and the sales comparison method are reconciled by an appraiser to determine the appraised value of a property. A commercial appraisal can cost you anywhere from $1,500 to $15,000 or more depending on the size and type of property. Therefore, you want to establish a conservative value before paying an appraisal to determine your interest in a property.

Invest in commercial properties that generate income

As an investor in anything, your goal should be to buy low and sell high. This means that you will never pay the value of a property using the income method. Usually he wants to pay substantially less. You can in this market now. By doing so, you increase your monthly income and open the door to many creative financing options. Once you have mastered estimating value based on income and sales comparison methods, you will have taken a very important step in becoming a successful real estate investor.