Investment properties are bought by investors. Investors are generally looking for one thing: a good rate of return. Numbers are what drives the purchase decision. Emotions and other factors (like schools, etc) generally do not fit into the equation. Both buyers and sellers of investment properties need to be clear on this.
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The Truth about Investment Properties
What is an investment property?
It can be any type of property but generally they are commercial type properties. Investment properties are those often used for office, manufacturing or retail space, or are made up of multiple dwelling units. But they could be single family homes or even farm lands.
If you are looking to buy an investment property, you have to understand that it is all about the numbers. It is all about income being greater than the expenses. A one-bedroom unit will only bring in so much rent in a given market. This income will ultimately determine that unit’s value. Remember, the numbers will not lie. Do not try to force or massage the numbers or you will get burned every time.
Lessons for a Would-Be Investor
If you are looking to sell an investment property, you have to understand that it is all about the numbers. It is all about income being more than expenses. Sellers, remember when you bought your investment property? What were you looking for? You wanted a decent return on your investment. Sellers and current owners need to understand that the only people (except for a rare occasion) who are going to buy that four-plex, small apartment building or commercial building are other investors. Generally, the only property that can be sold for a retail price is a single family retail property to an owner occupant in a decent neighborhood. Everything else is going to be sold to an investor who is looking at the numbers for a decent return.
So don’t get mad when an investor offers you a fair price based on the property’s income. We honestly do not know how that real estate agent figured out that asking price. Investors care about one thing, the numbers, because the numbers drive the property’s value. So, investment property buyers understand what you are buying, sellers understand what you are selling, and owners understand who you are going to sell to in the future.
Just thought I should clear that up.
(On a completely unrelated note – Go Memphis Tigers!)
Photo: Neil Kremer