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Income
& Investment Property
The role of
investment entrepreneurs is vital to renewing aging and
neglected properties in our northern Utah communities.
Many of our turn-of-the-twentieth-century houses are
still gracing our neighborhoods because of real estate
investors. As a rule-of-thumb, investors should look for
the following qualities in investment properties:
- Bargain-priced
properties
- Properties you can
profitably improve
- Properties with
below-market rents that you can raise to market
levels within a relatively short period
- Properties with low-interest
financing such as mortgage assumptions,
adjustable rate mortgages, buy-downs, or seller
financing
- Properties in up
and coming neighborhoods that are soon to be
revitalized
Multi-Family
Housing
Apartments are a basic necessity! Economics, or
affordability of housing, forces many to rent. This
creates the broadest and most competitive marketplace in
the Commercial/Investment field. There are more apartment
buildings than all office, retail, and industrial
properties combined. The continued volume of building
permits indicates that strong multifamily construction
will continue. Present economics of housing indicate that
demand for apartments will not only continue to be strong
but will probably increase, and that the value of
existing properties should increase markedly.
- Generally speaking,
apartment buildings can be leveraged to a higher
degree as compared to other commercial properties.
- The tax shelter
benefits have been favored, and though investors
usually do not purchase apartments solely for the
inherent tax benefits, they do see the tax
shelter benefits as a great plus.
- Less sophistication
is required to own and operate.
- Broad rental
markets. A utilitarian demand exists because
people need places to live.
- Variety of
apartment sizes and prices allows various types
of investors to enter the apartment ownership
market. From "Ma's and Pa's" to major
corporations and pension funds -- all own
apartment buildings.
- Responsiveness to
entrepreneurial efforts. Unlike other real estate
vehicles, apartment building value determinants (occupancy,
income, expenses, financing, etc.) can be
impacted by the owner, and it is easier to do (as
opposed to an office building where major tenants
have long-term leases which cannot be re-negotiated
until the end of the lease period).
- Professional
management is usually available, but at a cost.
- Unit mix must be
matched to the demographics of the area (i.e.,
studio apartments are less likely to succeed in a
family area).
- Not having key or
anchor tenants may be an advantage.
- Exposure to
government regulations (primarily rent control).
- Institutional and
seller financing availability.
- Elements that
contribute to a good apartment location are:
visibility and close proximity to major highways,
labor, transportation, shopping, and residential
housing tracts.
- Pricing apartment
buildings involves the use of the gross-rent
multiplier, price per square foot, price per unit
(CPU), and capitalization rate as "rules of
thumb" or value measurers.
- Property condition.
Deferred maintenance can be extremely costly and
detrimental to achieving investment objectives.
- Ratio of land to
improvements affects the amount available for
depreciation, and this affects the tax benefits
associated with the property.
- Master metered. If
the owner is required to pay utilities, it will
substantially affect the expenses connected with
the property.
- Vacancy. In
general, this will reflect the physical appeal of
the property, in addition to the number of units
on the market, and whether or not rents are in
line with competition.
- Parking. Both the
condition and number of spaces available, as well
as the type (covered, carports, open).
- Furnished vs.
unfurnished affects the rental schedule and
amount of depreciation available.
James E.
Bohne, Jr., REALTOR®
Mobile: (801) 791-9579
Office: (801) 476-9500
Fax: (801) 476-9581
E-mail: j.e.bohne@att.net |
Crest Realty
Inc.
Equal Housing Opportunity.
Equal Opportunity Employer. |
Copyright © 2003,
James E. Bohne, Jr., All Rights Reserved
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