A colleague of mine Michael Margolis with Prudential Commercial sent me this information on single tenant commercial real estate investments and if they can help diversify your investment portfolio in a slow economy.
Investors can find triple net deals which mean that the tenant pays all rent, utility, property taxes, and all expenses related to the property so there is essentially little to no landlord expenses. Investors can get 8%-10% Capitalization Rates. The capitalization or Cap Rate = Annual net operating income / cost (or value). The Net Operating Income is defined as the annual rents minus the monthly expenses. This can translate to 10%-15% Annual Return On Equity and, Including Loan Amortization and Tax Benefits, Compare to a 20%-25% Average annual return over the holding period.
What are some of the advantages of investing in commercial real estate :
* Single Member Equity Investments can be as low as $50,000
* Investment real estate does not corrolate with the stock market. Investors can maintain your return during economic slowdowns.
* Select small banks have funds available for leased properties
* Interest rates are low and cap rates are rising
* Positive leverage environment: borrowing at 6% and buying at 8% to 10% Cap Rates boosts actual annual cash return over 10%.
* Assistance with LLC creation and financing is available.
* Single Member LLC’s Don’t Require a Separate Tax Return.
* IRS Allowed Depreciation and Interest Deductions Provide a Significant Advantage for After Tax Returns vs the Stock Market.
Realtor Magazine had an article on investing in a slower market. Many real estate professionals are buying property today agreeing that purchasing investment property is less about market timing than good analysis. You may find more properties that meet your yield requirements in a slower market where prices have declined and rents have remained stable. Lower initial purchase prices are inconsequential if the rent and vacancy rates do not support your income expectations.
While cash flow, appreciation, leverage, and taxes all figure into the investment analysis equation, the bottom line for most buyers is positive cash flow after paying the mortgage and taxes. Investors appreciate that a break-even investment can be a good when you are in a position to hold them longer term. I recommend looking for properties that will return 3% to 5% for single-family homes and condos, and 7% to 8% on three to four family properties. These returns are very attractive compared to current market performance.
The most important part of purchasing an investment property is being familiar with the neighborhood and understanding the trends in the market. Investment properties are good sources of passive income generation so long as they are filled with tenants and the rent rates cover the mortgage and maintenance expenses. Please contact me if you have any questions on your investment needs.
Investors who own multi-family properties or apartment buildings are consistently trying to ensure that their rental rates are consistent with the market. Where as an investor can you go to find the market rates for your area. You can look in the local newspaper such as the Cincinnati Enquirer or community newspaper such as Suburban Life Press for the real estate classified ads.
There are more specialized websites that can show general market trends that have more specific information for areas with a lot of rental property. Apartment Ratings.com is a resource that property owners can use for this purpose. Move.com and Apartment Finder.com have apartment listings with amenity descriptions so that you can compare your property to others that are on the market for rent.
I am searching for other websites that list specific apartment rental rates in Cincinnati with more specific rental data listed by neighborhood. Please email me or comment below if you are aware of a database with this information.
