Investment Property

Investment Opportunity

 

This month I want to highlight a new listing that could be an excellent investment property for one of my readers.  I am often asked if I know any properties for sale that are like this one.  The property consists of 2 buildings that were built in 2000.  One building is fully leased to 1 tenant and the other is a duplex building with 2 tenants.  This offers the ease of only 3 tenants, but also more security than a single tenant property, in case one of the tenant’s leaves.  The property is well located near S. Airport Road behind Art Van at 1760 & 1764 Forest Ridge.

 The leases are at or below market rents, which means that if a tenant leaves or comes up for renewal there is some upside potential for additional income.  The leases are not long term, so it is very good that the financials are not based on an inflated rent.  The tenant’s cover all of the expenses, so the landlord’s financial responsibilities are limited.  The biggest risk is the duration of the leases;  two expire this year and one expires next year, however the landlord is working on a long term renewal with the tenant who leases an entire building and it is anticipated that the other tenants are planning on renewing as well.

 Click here to view a link to a 5-year analysis of the properties assuming the tenant’s remain on the same terms that they currently have.  This is a good example of the type of analysis done by CCIMs for their clients to determine the return an investor will have on a real estate investment.  This example assumes that a buyer has a 20% down payment and finances the rest of the purchase price at a 5% interest rate.  We assume that there will be 7% annual vacancy on average, as tenants turn over.  This analysis includes all expenses including a management fee for the property manager, reserves to be saved for repairs, and the cost of future leasing commissions.

The actual cash received in the first year is $89,040 which is a 10% Cap rate (this is the return based on a $895,000 sale price, if an investor paid all cash).  Based on the anticipated income after accounting for vacancy, reserves & commissions it is an 8.7% return.  If you scroll to the last page of the analysis you will see 3 different sale price scenarios ranging from selling at an 8%, 9%, or 10% cap rate.  Based on the sale at a 9% cap rate, the internal rate of return (IRR) is 20.6% on the initial investment (the buyer’s 20% down payment plus loan fees and acquisition costs).  For an investor in the 36% tax bracket, this represents a 14.63% return after taxes, which is a lower effective tax rate than they would have in alternative investments.  Most of the properties that have been listed with this type of potential in the past few years have been bank owned and not fully occupied.  This one has been well managed, is fully leased and is priced to sell.

 If you have any questions on this analysis or are interested in more information on this property or other investment property, please feel free to contact me.

 

Dan Stiebel, CCIM

 

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Dan Stiebel

Dan Stiebel

Associate Broker
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