Income properties are, to many, the ideal investment. Not only does one receive rental income on a monthly basis, but he also gets to enjoy capital appreciation—or at the very least, a solid hedge against inflation. With favorable tax treatment throughout and available 1031 tax deferred exchanges, one would be silly to not at least consider real estate investment.
And so he does. Hypothetical investor Bob purchases his first income property: an 8-unit multi-family in sunny San Diego, California. He loves the fact that it’s in a great location, has a favorable unit mix, and there has only been one vacancy in the last two years—and that vacancy didn’t last very long. As far as Bob is concerned, he has made the perfect investment. How could he do any better?
Raise the rents!
Typically, investment properties in low-vacancy, heavily renter-occupied housing areas that incur vacancies about as often as the Chicago Cubs win World Series have one problem: their rents are too low. If the rents weren’t below market, they would incur significantly more turnover.
That’s the key word: turnover
Turnover is a good thing; vacancies, themselves, are not. What’s the difference? A vacancy occurs when a unit has been turned (i.e. “rent ready”) and it does not have a tenant, or a prospective tenant. Turnover occurs when someone moves out of a unit and another moves in.
Joshua Dorkin
Charles Feldman
Ted Karsch.
Investing in Main Street Versus Investing in Wall Street
by Ted Karsch | October 21, 2008With the Dow Jones Industrial Average having seen a steep decline along with most other major US and international stock indices, many American investors now are in despair about where they should position their investment capital. Meanwhile, the savings rate for American consumers has never been lower. As the credit markets continue to tighten and [...]