Investment Property

1-4 Unit Income Property

A purchaser of income/investment property is usually interested in finding the right property on which to make a good return in the future.

Experienced buyers and sellers of investment property understand that the real estate market does not guarantee return, and at the right time there may be good production of income and capital appreciation.

When considering residential properties of 4 units or less, financing  may be more liberal than with commercial properties, but profit margins, depending on the current market, may not be as large as with commercial properties, so  the purchaser will want to understand some of the differences.

For a complete analysis, the buyer and seller will want to consider multiple factors:  compete property income; expenses including insurance, taxes, maintenance; property taxes; debt ratio; financing guidelines and qualification; vacancy rates; any bad debts; all in order to determine net cash flow.

Two tools often used to determine a "ballpark" value are the Gross Rent Multiplier (GRM) and the Capitalization Rate ("cap rate"). They each have limitations, but offer an initial estimate:

• GRM = Price divided by gross annual income. This is a number that may be used in comparison to GRMs of other local area sales, and gives an idea of profitability and income.

• Cap Rate = Gross Income minus expenses divided by purchase price. The cap rate is also a local market value comparison, and is used for potential    annual rate of return.

For more conversation about the sale or purchase of this type of property, please contact me directly or through the website. 

The purchase of your property may put you on the path to future wealth building!

See the 1031 Exchange page also.

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