What You Need to Know To Evaluate Income Property

Think you’ve found the latest hot-spot for investing in a rental property?

We asked Sperry Van Ness National Director of Multifamily David Baird to share some tips on evaluating deals in commercial real estate:

Job Growth

“You should always look first at job growth in the area,” David says. “Is there something to draw renters to your area?”

New Construction

After that, look at construction. “The construction industry has everything to do with rental prices.”

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  What types of houses are being built nearby?   In high-barrier-to-entry cities, like New York, Los Angeles and Boston, probably very little new construction is available.  That keeps rents competitive and occupancy rates high. 


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  Likewise, in areas of heavy construction, check out what level of homes are coming in. “Million dollar homes don’t affect the rental market that much. But an abundance of entry-level homes lowers rents and occupancy rates.”

Take into account retail and office construction, too.  “These buildings typically follow the rooftops,” David explains, indicating a heavy concentration of single-family homes, which can impede the rental market.

Listings

• A quick way to evaluate an individual listing is to calculate the cap rate on the subject property.  But do your homework –know what the cap rates are on similar properties and determine how fast cap rates are changing in the area.
• If you live in those high-barrier cities, but can’t afford the elevated prices for commercial investments, you can consider listings in other cities with a more up-and-coming market. 

When you buy outside your own location, consider the importance of hiring a competent management company.  “Even with a property manager, you can’t just tune out. You still need to have good communication with your manager, and stay informed and involved to stay on top of your investment.”

Upgrades

You also have to get savvy about where to put your improvement dollars: 

• “Investors need to stick with tenant preferences, like curb appeal.” For interior upgrades, consider the rule of thumb and upgrade the areas where renters spend most of their time.
• “Location is likely the most important factor when considering sinking money into improvements.  A good location merits a higher investment on improvements. But nothing you spend on the interior will make your bad location more appealing.”

Sperry Van Ness Commercial Real Estate Advisors is one of the nation’s largest commercial real estate investment brokerage firms. David Baird serves as Sr. Vice President and National Director of Multifamily in Las Vegas. 

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing.  Find out more at www.joinaaoa.org.

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Filed under: AAOA Forum, Property Sales

This entry was posted on Sunday, March 9th, 2008 at 3:05 pm and is filed under AAOA Forum, Property Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Why the Foreclosure Crisis Didn’t Crush the Las Vegas Apartment Market said at March 13th, 2008 at 9:14 am

   […] See more of our interview with David Baird, including What You Need to Know to Evaluate an Income Property, and Why is the Las Vegas Market is Poised to Skyrocket? […]

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