What are the Property Types?

The core property types in commercial real estate consist of office buildings, retail centers, industrial buildings and multifamily units (apartments). All these share the common thread that they are occupied by tenants who pay to lease space. However, different types of tenants come into different categories. For example, while the stores at your mall may change frequently, your doctor may have been in the same place for the last ten to twenty years. Retail occupants are relatively cheaper to replace than office tenants, but need replacement more often, whereas office tenants are hard to replace but tend not to move around.

What is Net Operating Income

The essential determining factor of commercial investment property is its net operating income (NOI). NOI is calculated by summing up a property’s annual rent and reimbursements and subtracting any expenses which are neither capital nor tied to leasing new space. Commercial properties are valued by comparing their NOI by the sale price or value, which is called a capitalization, or “cap,” rate. No matter, what the cap rate is, the higher a property’s income, the higher its value will be.

Financial Factors

You must take into account capital expenditures and leasing costs while calculating property’s NOI, because they impact your total return. If you require help to understand what your true returns, you can seek guidance of a local expert in the field.

Financing

The financing for commercial property is mainly based on the income that it generates. Lenders carefully deem the “debt coverage ratio,” which is determined by dividing the cost of a year’s NOI by a year’s mortgage payments. If the NOI is found to be far less than the mortgage payments, the bank never sanctions the loan. This is, exactly, the opposite of residential real estate, where the loan is made, based on the borrower’s ability to repay it.

Final thought

Just like any other investment, commercial real estate requires attention in order to succeed. Remember, your job is not only to invest money to maintain the building, but also to invest on occupancy or rents, in order to increase the NOI.

Firstly you need an excellent marketing strategy. If you’re a good real estate agent, you will already have realised the potential of a diverse client base and target audience. A great way to get new clients is to run a seminar or talk of some kind in your local area. First time buyers often have lots of questions to ask, so they’ll be grateful of your advice and may even be potential new clients!

Keep business cards on you at all times – wherever you are, there could be a prospective client who will need your services. A magnetic car sign is also a great idea for those wishing to advertise their real estate website all over town. Once you’ve purchased the sign, you won’t need to spend any more on this marketing idea, so even if it only draws in a couple of clients, you won’t have lost out. It’s good to experiment with different strategies – as one approach won’t draw in 100% of your clients.

The population of Flint, Michigan is approaching 112,000, and average age of people living in Flint is just over 30 years of age. Your target market is out there. First-time buyers are itching to find a reliable, friendly real estate agent – all you have to do is market your services successfully and the clients will come to you. Why not check out some statistics for the Flint MI area online or in the local papers? It’s only through dedicated research of your target market, that you can begin to advertise your business accordingly. Whether you’re a landlord or an agent looking to sell a vacant home, apartment or condo, your marketing strategy will, more often than not, determine how successful your Michigan investment property or business can be.

Why is it important to keep your tenants happy? If you’re letting out an apartment in Michigan – whether it’s in Traverse City, Detroit or Lansing – your tenants are your cash flow. The main reason people let out property is to make money and invest in their financial future – but many people make the crucial mistake of finding tenants and then thinking they can sit back and let the money roll in. If you’ve ever had to unexpectedly replace tenants, you’ll know that it takes up both time and money. Your tenant is your customer, and although they will be living in your house or apartment, you need to keep them happy to reap the rewards.

Being a good landlord means maintaining your property. If anything needs to be fixed in the house, fix it right away. Trust your tenant with your property. If you’ve vetted them to begin with, they won’t want you strolling past their house every ten minutes to check what they’re up to.  If you refuse requests to upgrade, repaint or re-carpet a property (within reason) you are doing yourself no favours, seeing as you will have to do it to find new tenants anyway. If you’re getting confident and think that increasing the rent on your property in necessary, make sure that it is justified. If the tenant doesn’t want to pay the new amount, you will end up losing money looking for a new tenant anyway.

Although keeping your tenants happy is very important – you should never accept the first tenant that comes along. It would seem that filling a vacant property as soon as possible, regardless of the quality of your tenant(s) makes financial sense. On the other hand, you could lose out in the long run if you have to keep replacing lousy tenants.

Detroit is a great place to be a landlord – with the average price of houses per square foot up by 6% in comparison to this time last year. Statistically, when looking at the median sales price for homes in Detroit, Michigan this has increased by 20.2% on last year’s figures – which means that if you want to buy a house to rent or sell, now is the time to do it. If house and apartment prices keep rising with this trend you could make thousands of dollars – either by being a landlord, or simply by buying and selling property at the right time. Up and coming areas in Detroit MI currently are Indian Village and North Rosedale Park, where average listing prices are $263,523 and $73,656 respectively. If you’re looking for somewhere other than Detroit, Michigan, why not look into properties in Battle Creek, Flint or Kalamazoo – all of which are great potential areas for investment property.

If you want to make money from real estate in Detroit, but you don’t want the hassle of being a landlord, there are a few different ways.  You can either choose to be a real estate retailer, or a real estate dealer.

Whereas retailers buy and sell investment property for a quick profit (for larger probable rewards), dealers buy and sell contracts. Real estate retailers obviously need more money to start out with in order to buy the property – they will need a large down payment (deposit) as well as a good credit rating.

However, if you choose to be a real estate dealer, you can find cheap properties and sign purchase contracts with the sellers. This assignment of contract means that you can sell the contracts on for a profit. The only cash normally required for such a transaction is the small amount of money for the deal – and you never actually own the deed. This is a creative and less risky investment for those who want to get a foot on the real estate ladder, but don’t have a good credit rating or enough spare cash to buy and sell properties.

The big question is, does the new loan at 5% actually save John money? After all, he’s getting a 1% rate reduction and a lower payment, right? Many cite the “1% rule” as a general rule of thumb to determine if it makes sense to refinance. In other words, if you can drop your rate at least 1%, it makes sense to refinance, right? We shall see if this rule applies in this scenario. Now, if John continues to pay his existing 30-year fixed loan at 6% until paid off, he will incur another $217,027.00 in interest charges. As shown in Figure 1, if he chooses to refinance into a new 30-year fixed at 5%, his total interest bill would be $221,289.71 – an increase of over $4000 versus his current loan! Despite the lower rate and payment, John loses in the end!

Figure 1: Running the numbers shows that a 1% interest rate reduction on a home loan does not necessarily mean savings in the long run. Click for larger view.

Lest you think the higher cumulative interest on the new loan is due to closing costs, let me show you a no-cost refinance scenario. But before I do that, let me point out that every mortgage loan has closing costs such as title, escrow, recording fees, etc. If a lender offers you a no-cost loan, they are still incurring closing costs, they’re just choosing not to pass them along to you. To make up for the expense of the closing costs they have to charge you a higher interest rate. You wouldn’t be necessarily worse off for taking a no-cost loan and the higher rate it comes with, it just depends on the scenario. If the loan is intended to be kept for a short term, say less than 7 to 10 years, it typically is better to do a no-cost or low-cost loan. If the loan is to be kept for a longer term, it usually makes more sense to pay the closing costs and get the lower interest rate. Inquiring about a no-cost option, John learns that his interest rate would be 5.25%, a quarter percent higher to make up for not having to pay closing costs. An analysis of the loan reveals that the total interest he would incur over the next 30 years on the no-cost loan would be $228,685.32, a sum significantly higher than the 5% loan option. Figure 2 shows a summary of the remaining interest for his existing loan as well as the two new loan options we’ve discussed.

Figure 2: An analysis of the numbers shows that a no-cost loan option doesn't necessarily save John any money either. The higher interest rate for the no-cost loan outweighs the benefits of not financing closing costs. Click for larger view.

So far, it’s not looking like the two new loan options are going to put John in a better situation than he’s in now. But does he have other options? Can he still save money by taking advantage of a lower interest rate? Absolutely! One option is to shorten the loan term to 20-years. Figure 3 shows a comparison of the interest charges on a 20-year loan option versus his existing 30-year fixed loan. Wow, what a difference a shorter loan term can make! It turns out that John’s payment is not much higher than what he had before. The difference between the 20-year payment and his current loan is only $67.15, yet he saves $78,472.93 over the life of the loan in interest charges. That’s over $78,000 that he can use to invest for retirement, fund college or wedding expenses for his kids, or reinvest back into his house. In short, it is wealth that he keeps in his pocket instead of paying to the bankers that hold his mortgage.

Figure 3: Cutting the loan term to 20 years significantly reduces interest expenses over the life of the loan. Click for larger view.

The main point to take away here is that a mortgage loan is much more than just an interest rate. If you are in the market for a new home loan, you need to work with a loan expert that can show you the entire picture when offering you new loan options and determine what will truly benefit you in the long run. Many lenders just quote rates and figure if they can give you a lower rate, you’ll be better off. Here at American Capital, we recognize that a loan is more than just a rate and take pride in doing the legwork to make sure that a new home loan will truly keep more money in your pocket in the long run.

Interested in refinancing or purchasing a new home in California? Visit MortgagesByMark.com and sign up for a free home loan consultation.

In Real Estate, still as of now the prices of new properties are low compared to what it was worth some years back. Many markets having shown an improvement of late, so now would be a good time to get in Real Estate before the markets start picking up. In fact, this is a good time to secure your future with real estate.

Two words: Foreclosed properties

Even now there are a lot of foreclosed properties for sale and buying the right property for rental purposes at this time will be beneficial because in addition to bargain prices, you will have plenty of houses to choose from. The higher number of unsold houses and low mortgage values will mean good bargain prices. Furthermore, the strict appraisal process for acquiring a loan that is now in place has helped keep prices low, thus investing into Real Estate is a very good choice at the current economic situation.

Try out in new markets

If you want to truly take advantage of the current situation, explore the non conventional market like in smaller cities where the markets have not started to or are in the process of picking up.

This is because the entry cost i.e. the initial capital required, is low compared to properties in larger cities. This is a good time for you to hone your investing skills.

Look at alternatives

If you don’t think you can have the stamina to become a landlord and don’t want to be bothered tenant troubles, than you can invest in real estate investment trusts, REITs, or buying shares in home building and associated businesses. With REITs, income is acquired through rents and thus the value of REIT stocks increase with increase in rent over time. Furthermore, REITs give you access to large scale real estate projects which are normally not in the reach.

 After the credit bubble burst of 2009, Mortgage banking has been labeled negatively as an income generating resource but now the mortgage market is back on track and steadily and firmly rising. According to Census Bureau, construction spending has risen 0.7 percent in the October compared to September, despite continued weakness in the single-family sector.  New construction will mean new houses which will lead to stronger real estate market and subsequently, stronger mortgage banking need. That is why Mortgage Banking will spearhead the Income Generation in USA.

Benefits to the Individual:

The individual maintains the ownership of the property instead of losing it and going through interest in the property. The lender which is the bank does not own the property in question and instead only works as the lender and hence cannot interfere. It only does so when the borrowing individual defaults.  The biggest benefit is that the borrower holds the right of benefits of ownership.

Benefits to the Investor:

Due to easy plans for down payments, unlike in traditional banking, the investor can make minimal down payments and still have access to the capital. Mortgage Banking plans increase the leverage as it allows time to pay attention to other matters since the plan is set accordingly. More importantly, the tax benefits that it gives can be availed as the interest payments which one pays on the principal amount is tax deductible.

Benefits to Bank:

Since schedules are determined prior to the start of initial down payment, managing money is easier and is done in a predicted pattern. Mortgage Banks still enjoy the legal ownership of the property as a security. Furthermore, since these plans are made to ease the payment, the chances or defaulting fall, due to which the bank forms a good credit history and thus enhances its credibility.

Follow the Statistics:

The best way to solve a problem is to consult an expert. You should apply the same formula when thinking of investing into real estate. If consultancy is out of your reach, you can find numerous websites on the Internet that contain vital information like Foresight Analytics that post very useful statistics on the current state of the Industry. You can also go to local town board meetings and find out whether the local law is going to affect or not. Visit the local banks and see what is really happening in terms of loan volume and required down payments.

Understand the jargon:

REITs, Flipping properties, day traders are all the technicalities that you will come across when you are researching on the Real Estate Industry. If this is your first deal, it makes perfect sense to have a paid advisor, who will make sense out of the many difficult words, to make sure you avoid any stumbling blocks or legal entrapments.

Be on the lookout in the news for headlines that relate to Real Estate:

If looking up statistics is not your thing then you should keep an ear out for the financial news

on Television. It can also convey the general picture of the Industry, so to speak. Furthermore,

it can also help you keep track of any new reforms/ laws that are being passed pertaining to the

real estate industry

When to invest? Is an interesting question:

At the current state of the industry, we know that real estate prices are still down; due to the government stimulus and bailout packages that trend has leveled off. Yet the investors are still not strong enough to pour in cash and thus are doing so carefully, so one could say, now would be a perfect time to buy as the prices of shares are low and wont further fall as the economy is slowly making a U-turn. Thus you should have a complete understanding of the buy and sell cycle.

Of course, you can’t be a landlord without having the renters to live in the properties
you have. As a property owner, you have the chance to be selective over who
you choose as a renter – however, the qualifications you consider are restricted to
whether they are in employment with a consistent income to pay their rent at the
end of each month. Because of the laws in the US that govern Fair Housing, you
are unable to discriminate against prospective tenants because they have children,
a disability, or because they are from an ethnic minority – and so you may be
penalized for doing so.

Following on from the subprime mortgage crisis, pricing is a real sensitive issue
amongst those looking for vacant homes to rent in Detroit. Because of this, you need
to ensure that your rent prices are competitive yet profitable. It’s a difficult balance to
achieve – and browsing through rental properties online and in newspapers will give
you a strong idea of the asking price in the area of Michigan you live in.

The next piece of advice is to ensure that you know what to do if your apartment or
house has an emergency – such as a malfunctioning toilet. In these situations, you
need to be reactive through repairing it yourself or having the contacts of someone
who can.

If this is your first time as a landlord in MI, it will be a learning curve – and you have
to treat it like one. It can be a rewarding and profitable role to have full time, or a
great form of supplementary income if you are in another job. Do remember that
talking to other landlords for their first-hand experience and advice is a great idea,
as it will enable you to start leasing out your properties on the right foot. Through
making sure your properties are presentable and well-advertised, you’ll be a landlord
in no time!