Refuge InvestmentsNovember 2
There are plenty of ways to make money in real estate. One of the better ways to invest is by purchasing a cash-flowing occupied property.
Not surprisingly, occupied real estate is extremely attractive to savvy commercial real estate investors, thanks to the many benefits they offer. If you want to learn some of them, keep reading. We also published a supporting article: 5 Surprising Tax Benefits of Real Estate Investing if you wish for additional information.
For this article, it is a real estate parcel that already has contracted income in place, either because a business is actively using it or in a residential property, it has families living within.
As an investment, the prospect of immediate income at purchase supports any borrowing effort and serves to reduce speculation and risk associated with other forms of investing. Multifamily properties work great for these investment types because they result in multiple tenants diversifying risk and minimize vacancy risk. Also, frequent lease renewals allow yearly inflation adjustments, further insulating the investor from future market volatility.
Properties that are vacant or partially vacant, and even new construction, pose a real challenge to the purchasing investor. Speculation is required to identify the level of income the property may generate in the future. Much like the stock market, invest early and cross-your-fingers approach is often a recipe for disappointment.
When purchasing an occupied property, the current rents are identified. Additionally, historic rent collection records provide both the operating expenses and the rent history for years before buying. Using that historical data and making your current investment decisions on the current cash flow makes speculative income assumptions unnecessary.
A multi-tenant occupied property ideally provides enough revenue to pay all the operating expenses, including any monthly mortgage fees. If purchased right, you’ll still have profits left over for steady cash distributions.
It is also reasonable to consider every payment against loan principal, made by your property’s income, as a deposit in your savings account. Your tenants are willingly paying down your liabilities while your assets keep increasing. Not to mention the benefits of inflation and income growth.
Another advantage of an occupied multifamily property investment is that the lending industry favors the asset class and typically offers better than average loan terms.
One more significant benefit when looking at an occupied investment property is reviewing and determining the existing tenants’ quality and past performance. This information plays a large part in the smoothness of the new ownership transition.
As you can tell, purchasing an occupied property can bring significant benefits. Whether you are buying a smaller asset or joining with others in a more substantial opportunity, reducing speculation is a primary key to producing desirable outcomes that most investors seek.
If you want to leverage the experience of professionals, we’re here to help. Learn more about our investment opportunities here and get in touch today.