What Everybody Ought to Know About Buying Income Property
ByGuest post by Doug Lytle
When you buy income property always remember that you are buying an ‘income’ property. Don’t fall in love with it, and be sure to keep these ideas in mind.
When you buy an income property are you buying the bricks and mortar, or the income stream? Take your time and think about this one… Are you sure? How does it get financed – an evaluation of the income stream and leases or strictly a direct comparison to other properties? From my perspective, you’re buying the income stream that the property generates i.e. you agree to pay a price today to secure future income. The bricks and mortar are simply a vehicle to provide that income. Within reason, you should ignore the final sale price of comparable properties unless they have similar leases with similar tenants with similar covenants in similar neighbourhoods, etc., etc. ad nauseum. Rather, when looking at comparable properties, you’ll be looking at the income stream and the capitalization rate applied and how it compares to the property you’re considering.
Buy for cash flow today, not tomorrow. The price you pay for income property today should provide positive cash flow today – not at some point in the future. If an investment can’t carry itself from Day 1, it’s not an investment, it’s a liability. If there is more month left at the end of the money, guess who gets to pick up the shortfall? Hint: It won’t be me, because I would have advised you NOT to buy that particular property!
Ignore capital appreciation – don’t wish for some future gain. Wishes won’t get you to your desired rate of return. Telling yourself, or worse relying on bad advice, that you shouldn’t worry about any shortfall in cash flow because the market is just going “up, up, up!” is sheer folly. Surely you haven’t forgotten 1990 or late 2008 already? As I said above, the property should return a postive cash flow that meets your target rate of return today. Any increase in value over time is your upside and should be looked at as just that, upside.
If I missed anything, or if you just think I’m off my rocker, I’d love to hear your ideas in the comments.
Hi, great article, and cheers for taking the time. One thing, I believe your images are
Very interesting and useful article.
Thanks Krista!
A well written article to be sure. Keep up the good work.
Cheers for this excellent insightful article. Now and again, the very best advice come from the articles you may not expect. So far, I didn’t give much thought to writing comments on weblog entries and have left comments even less. Taking note of your pleasant report, may very well inspire me to take action sometimes.
Thanks for saying so, it very instructive for me. I have just got interested in blogging and hopefully i am able to do so
I really like this post,because i do believe this will help us to make a sound project on this topic.I bookmarked the site so in future i can search it for more article.
I admit, I have not been on this webpage in a long time… however it was another joy to see It is such an important topic and ignored by so many, even professionals. I thank you to help making people more aware of possible issues.
Hello there everyone
Just catching up on this.
Took me time to read all the comments, but I really enjoyed the article. It proved to be Very helpful to me and I am sure to all the commenters here! It’s always nice when you can not only be informed, but also entertained! I’m sure you had fun writing this article.
This is a great site. Good clean interface and nice informative articles. I will be coming back in a bit, thanks for the great article.
Oh my goodness! Youre so right! I really dont think anyones put it that way before! You must be an expert on this because you just made it so easy to understand, made me want to learn more about it! Do you, like, study this subject because you seem to be so in tune with the issue? Keep it up, man. Youve got a great mind for it!
That is some inspirational stuff. Never knew that opinions could be this varied. Thanks for all the enthusiasm to offer such helpful information here.
hey,this is Dewayne Accurso,just discovered your Blog on google and i must say this blog is great.may I quote some of the writing found in the blog to my local students?i’m not sure and what you think?in either case,Thx!
Long time reader first comment. Hey I favor what I’m reading overlooking your website and must say nice. I’ve a little blog myself for this topic. I discovered your blog through google I hope I get traffic as if your site soon. I guess . Well basically good posts on health I’ve enjoyed. The comments certainly are a bit short I ran across your site through Yahoo.
Thanks for the sharing really usefull. I would like to bookmark this site.
Mortgages on ‘freehold’ premises are based on the value of the bricks and mortar.