Real estate that generates business income

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

Commercial vs. Residential Income-Producing Property

If you are deciding whether to purchase residential properties (4 units or less) or commercial multi-family 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 must access the value. Residential Real Estate value is based on the sales price of similar properties in the same area. This pricing 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 Entry Method is:

• Potential Gross 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 property type in the area.
• This gives you a value based on the net income of the property.

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 based on 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 master estimating value based on income and sales comparison methods, you will have taken a very important step in becoming a successful real estate investor.