One of the "things" about selling Commercial Real Estate (CRE) is that I get to talk to a lot of different people from different walks of life from around the world.
Some of these people come with a lot of baggage; they are wounded internally and sometimes it takes me months before I realize the extent of their troubled life. Others present themselves as if they are an open book. And they talk and talk and usually have very little to say.
But, the client that I like is the one who is more of an explorer. They are on an adventure rather than they just wandered into CRE investing. They know that CRE will payoff in time and they want to start slow and small -- price wise -- which is good most of the time.
They tend to ask for your help as you go along and they fear that they might embarrass themselves for NOT knowing simple information? It's at those moments you need to remind them: There is never a stupid question! Especially when it comes to CRE investing.
So, in order to resolve the anxiety any novice CRE investor may have, I would like to invite you to read the following information that is absolutely necessary for calculating the annual income from a marketed CRE Net Leased Investment Property that you may be considering acquiring for the annual income.
A lot of you are truly lay people. And, whether you are a famous celebrity or you are just exploring this as a novice investor, this might sound foreign to you. Just rest assured that just because CRE is a new area for you, it still is something you can get involved in -- even if to spruce up your usually normal day.
So, let's begin:
Now net income is also known as passive income. It's the type of income you earn monthly or quarterly as a dividend or investment. The good thing about this is: You pay a smaller amount in Income Tax on this money. ***Please check with you Tax Professional to verify this!!***
As you will figure out, the main goal of CRE is to allow you as an Investor, to earn a usually stable predetermine (estimated) annual net income (the rent you receive) from a Net Leased Property that is being marketed either by a Sales Price or a Cap Rate.
Usually, the marketing entity for the property will only disclose what the Listing or Asking Price is; and they will state that, that List or Asking Price is at a certain Percentage of Return on the Investment (ROI); or, as it is better known as: Capitalization Rate (Cap Rate).
Now, from just these two disclosures, you will be able to get an idea of just what the (estimated) annual income should be and whether or not the acquisition of this net leased property will "fit" your investment income needs -- or not.
The formula goes like this:
Sales Price times Cap Rate equals Annual Income. (SP x CR = AI)
For example: $315,000 x 9.5% = $30,000.00+/-. I don't know about you, but I could use an extra $30,000 per year. This could help pay for a parent's care or supplement a child's college fund.
And once you have the estimated Annual Investment Income from the Asking or Sales Price plus the additional disclosed Cap Rate, you can figure out your Purchase/Sales Price by dividing the Annual Income by a Cap Rate you desire to acquire the property at; OR by a Sales Price you deem as a fair market value.
You take the Annual Income you figured by the formula, and divide by the Sales Price you feel is a fair price or by the Cap Rate that you want as an ROI.
Either way, you can figure out from just two disclosed items the third item in such as you can for the Physics Traveling Formula: Rate times Time equals Distance (RxT=D).
So, this is just a basic formula. The Actual Annual Income should be disclosed in the current owners Financial Statements kept for this particular investment property. AND, during due diligence it is absolutely necessary to review those statements carefully when considering the acquisition of a Net Leased Property. And, most Sellers will NOT disclose actual financials unless there is an accepted offer and escrow has been opened.
So, hopefully, this will help most of you who are not that experienced in acquiring income producing properties. And, hopefully, you will be at ease when considering the next step in actually making a purchase move in that direction.
Now, take a look at the property information buttons in the right column. Click on one and try the formula out to see if you can calculate an offer price or acquire the property at a higher Cap Rate!
Contacting David Howes is easy -- either by email: david AT davidhowes DOT net OR call me at: 70 25 01 93 88 AND you can Follow David on Twitter: @DavidAHowes
Some of these people come with a lot of baggage; they are wounded internally and sometimes it takes me months before I realize the extent of their troubled life. Others present themselves as if they are an open book. And they talk and talk and usually have very little to say.
But, the client that I like is the one who is more of an explorer. They are on an adventure rather than they just wandered into CRE investing. They know that CRE will payoff in time and they want to start slow and small -- price wise -- which is good most of the time.
They tend to ask for your help as you go along and they fear that they might embarrass themselves for NOT knowing simple information? It's at those moments you need to remind them: There is never a stupid question! Especially when it comes to CRE investing.
So, in order to resolve the anxiety any novice CRE investor may have, I would like to invite you to read the following information that is absolutely necessary for calculating the annual income from a marketed CRE Net Leased Investment Property that you may be considering acquiring for the annual income.
A lot of you are truly lay people. And, whether you are a famous celebrity or you are just exploring this as a novice investor, this might sound foreign to you. Just rest assured that just because CRE is a new area for you, it still is something you can get involved in -- even if to spruce up your usually normal day.
So, let's begin:
Now net income is also known as passive income. It's the type of income you earn monthly or quarterly as a dividend or investment. The good thing about this is: You pay a smaller amount in Income Tax on this money. ***Please check with you Tax Professional to verify this!!***
As you will figure out, the main goal of CRE is to allow you as an Investor, to earn a usually stable predetermine (estimated) annual net income (the rent you receive) from a Net Leased Property that is being marketed either by a Sales Price or a Cap Rate.
Usually, the marketing entity for the property will only disclose what the Listing or Asking Price is; and they will state that, that List or Asking Price is at a certain Percentage of Return on the Investment (ROI); or, as it is better known as: Capitalization Rate (Cap Rate).
Now, from just these two disclosures, you will be able to get an idea of just what the (estimated) annual income should be and whether or not the acquisition of this net leased property will "fit" your investment income needs -- or not.
The formula goes like this:
Sales Price times Cap Rate equals Annual Income. (SP x CR = AI)
For example: $315,000 x 9.5% = $30,000.00+/-. I don't know about you, but I could use an extra $30,000 per year. This could help pay for a parent's care or supplement a child's college fund.
And once you have the estimated Annual Investment Income from the Asking or Sales Price plus the additional disclosed Cap Rate, you can figure out your Purchase/Sales Price by dividing the Annual Income by a Cap Rate you desire to acquire the property at; OR by a Sales Price you deem as a fair market value.
You take the Annual Income you figured by the formula, and divide by the Sales Price you feel is a fair price or by the Cap Rate that you want as an ROI.
Either way, you can figure out from just two disclosed items the third item in such as you can for the Physics Traveling Formula: Rate times Time equals Distance (RxT=D).
So, this is just a basic formula. The Actual Annual Income should be disclosed in the current owners Financial Statements kept for this particular investment property. AND, during due diligence it is absolutely necessary to review those statements carefully when considering the acquisition of a Net Leased Property. And, most Sellers will NOT disclose actual financials unless there is an accepted offer and escrow has been opened.
So, hopefully, this will help most of you who are not that experienced in acquiring income producing properties. And, hopefully, you will be at ease when considering the next step in actually making a purchase move in that direction.
Now, take a look at the property information buttons in the right column. Click on one and try the formula out to see if you can calculate an offer price or acquire the property at a higher Cap Rate!
Contacting David Howes is easy -- either by email: david AT davidhowes DOT net OR call me at: 70 25 01 93 88 AND you can Follow David on Twitter: @DavidAHowes
