You have heard this saying from savy investors..."you make the profit when you buy"...What is a "fair" price for an investment property? Some say "this % above the asking CAP"...others say "the lowest price at which the Seller will sell"...and, other investors say the fair price for an investment property is "the price at which a buyer will buy and an owner will sell on a given day in an arms length transaction." What is your definition of a "fair" price for the investment property you acquire?
By designing your leases with ANNUAL increases (say 3%) -- rather than increases every 5 or so years (or no increases) -- you enjoy more cash flow earlier in the lease term. It also increases the value ("Net Present Value" - NPV ) of the lease to you --and to the investor that purchases your investment property. Don't worry too much about NPV-- just design your investment property lease with ANNUAL increases rather than increases every 5 years or so. Annual increases should be easy to understand and approximate the CPI. "Tweaking" is fun (and profitable.)
Six highly respected economists recently gave their 2006 YEAR END predictions in the July "National Real Estate Investor" magazine. Here is the AVERAGE of their predictions for four key market indicators: GDP GROWTH -- 3.33%+; JOB CREATION -- 2.0 MIllion New Jobs; 10-YEAR TREASURY YEILD -- 5.11%; and, OIL ($ PER BARREL) -- $60.29. The most interesting (and surprising prediction) by an economist at the University of North Carolina was that OIL will fall to $31.75 per barrell by year end 2006. "Happy days are here again."
Most recent market trends by segment:
INDUSTRIAL --- 1st quarter '06 warehouse rents dropped slightly but are up 5.5% over 2005 same period. New industrial construction is up 13.2 million SF from 2005 and up to 40.2 million SF.
OFFICE --- The top markets for office absorption in 1st quarter '06 are Chicago, Dallas, Houston, Atlanta and Washington DC.
RETAIL --- Sales for REIT mall tenants rose faster than occupancy costs last year. Companies reporting increases are Taubman Centers up 9%; Simon Property Group up 5.4% and CBL & Associates up 4.1%. All three saw occupancy costs decline slightly.
MULTIFAMILY --- Rental rates are being pushed up by immigration increases, fewer completions and higher interest rates. Highest rental rates are found in West Palm Beach, Fort Lauderdale, Miami and Orlando, FL followed by Las Vegas, Riverside CA, Los Angeles and Orange County, CA.