About 2 years ago, I wrote this to help first time CRE Buyers learn how to view an investment property.
Going through past Posts, I thought this important enough that it should be run again.
Have you ever thought that maybe you were all alone in a situation; you definitely needed help; but, you were too timid to ask for the help fearing you would be embarrassing yourself for NOT knowing simple information?
It's at those moments you need to remind yourself of the old saying: There is never a stupid question! Especially when it comes to Commercial Real Estate (CRE).
So, in order to resolve any anxiety for those new to the CRE world, I present to you (below) information that is absolutely necessary for calculating annual income from a marketed Net Leased Investment Property that you may be considering acquiring for the annual income.
About a year ago, I laid out in this blog about how to calculate net income from a triple net lease.
A lot of you are lay people and this sounds foreign because it is an area of real estate you do NOT usually get into in your daily lives.
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 only pay a MARGINAL RATE of Income Tax on this earned money -- and that could be zero taxes! ***Please check with you Tax Professional to verify this!!***
So, the main goal of this formula is to allow you as a Buyer (Investor) to predetermine the (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 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 -- as the lay person -- 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: $1,970,000 x 8.79% = $173,163.00+/-.
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 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!
For more Information about Las Vegas Commercial Investment Real Estate Property, contact David Howes at: davidATdavidhowesDOTnet OR 702-501-9388!
AND AS USUAL, ALL INQUIRIES ARE KEPT STRICTLY CONFIDENTIAL!
Going through past Posts, I thought this important enough that it should be run again.
Have you ever thought that maybe you were all alone in a situation; you definitely needed help; but, you were too timid to ask for the help fearing you would be embarrassing yourself for NOT knowing simple information?
It's at those moments you need to remind yourself of the old saying: There is never a stupid question! Especially when it comes to Commercial Real Estate (CRE).
So, in order to resolve any anxiety for those new to the CRE world, I present to you (below) information that is absolutely necessary for calculating annual income from a marketed Net Leased Investment Property that you may be considering acquiring for the annual income.
About a year ago, I laid out in this blog about how to calculate net income from a triple net lease.
A lot of you are lay people and this sounds foreign because it is an area of real estate you do NOT usually get into in your daily lives.
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 only pay a MARGINAL RATE of Income Tax on this earned money -- and that could be zero taxes! ***Please check with you Tax Professional to verify this!!***
So, the main goal of this formula is to allow you as a Buyer (Investor) to predetermine the (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 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 -- as the lay person -- 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: $1,970,000 x 8.79% = $173,163.00+/-.
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 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!
AND AS USUAL, ALL INQUIRIES ARE KEPT STRICTLY CONFIDENTIAL!
