Earnings property advantages are truly hidden from the general public. Think about it. Have you ever sat down with a financial planner and asked yourself why he has never recommended that you take your money and invest in cash flow properties? I mean really... many of the wealthiest most people in the world have used cash flow property to literally build empires! Trump, Kiyosaki, Hilton, Kroc, and Donald Bren one thinks of. Yet, how often are you advised to look into it?
While you are are pondering that question, think about this: cash flow property than the "traditional" investments peddled by many "financial planners" may provide higher returns with less risk and more regulate to you, as the investor.
Since many are unfamiliar with the importance of cash flow as it relates to any business. Let's start truth be told there with a quick definition:
Cash Flow: Is the amount of cash that an investment or business venture creates over a specified period of time. Since profit or cash is the primary driver of a business and gives business owners the freedom to create more products, services, or simply pay dividends to shareholders, most analysts believe cash flow to be a company's most highly regarded financial statistic. Organizations and additionally businesses with big cash flows are almost always takeover targets because the buyer knows that the cash can be used to help stabilize the costs of the purchase deal.
Isn't that interesting... (Note the underlined sentence above) But, how does that connect with property? Think of it this way; each cash flow property that you own can be considered its own "company". That is each cash flow premises has income in the form of rent, and expenses in the form of taxes, maintenance, or debt service. So , just like large agencies have income and expenses, you as an cash flow property investor will as well.
So , first and foremost, understand that there is a change between investing and speculating. An investor will buy cash flow, while a speculator will bet on a increase in price or buying low with the hope of selling in the future at a higher price. In the investment property environment, speculators are known as "flippers". This is a topic for another discussion, yet just know there is a difference.
Now, which are the advantages of knowing how important cash flow can be? And, why do I prefer cash flow The Avenir to speculating or "flipping" a house?
Advantage 1: When buying cashflow property, I am creating a recurring income stream. So , when I invest my make the most a property that I will in turn rent to a tenant, I am effectively being paid for having put my money at stake. The tenant will pay me to live there which creates my income for the property. Having income from the home gives me a steady stream of cash flowing to me which I am free to use.
Contrast that with the circumstances of flipping the property. If i put my cash into a property for the purpose of fix and flip, then while the residence sits vacant, or is under repair, or being advertised for sale I am not receiving any cash flow. My own cash is effectively tied up and not available for me to use until I sell the property and I will only profit if I sell for more than I have put into the property. I personally would prefer not to have to sell a property in this market offered the current conditions as it may take some time. During the time I am holding the property and waiting for a sale, that property is charging me money in maintenance, taxes, and advertising.
Advantage 2: Buying cashflow property creates an asset. What will do that mean? It simply means that you now control or own something that pays you! The real difference between assets in addition to liabilities is that assets pay you and liabilities require payment from you. Your personal residence is not a great asset, it is a liability! It requires payment from you in the form of mortgage. Even if your home is paid for, it requires payment from people in the form of taxes, insurance, and upkeep to name a few. In reality your house is an asset for the bank that owns ones mortgage, or the state and federal government that collects your property tax, and the maintenance man who does your lawn... For your needs though, your home is a liability!
Buying cashflow property creates an asset because you put a tenant in the real estate who pays you. The rented property throws off cash flow that you can use or reinvest. Every time you buy a true utility, you get one step closer to financial freedom and a life of liberty.
Think of it this way... If your lifestyle bills you 5, 000 per month, you only need to have assets which pay you 5, 000 per month to maintain your current quality lifestyle. Why would you have to work at a job if you have other sources of income? You wouldn't... That's the beauty of owning financial property. It puts you one step closer to freeing yourself financially.
Advantage 3: Buying cash flow property brings about tax advantages. That's right. And, probably one of the most misunderstood tax advantages is that of depreciation or "phantom cash" as some call it. Basically, phantom cash (or depreciation) can be taken literally as just that, it is profit that doesn't exist. Depreciation is a government incentive and tax loophole of the rich so they can benefit from real estate to a better extent. The way it works is this... government states that you can take the value of a building divide it just by 27. 5 years and deduct that amount from your taxable income every year!
Let's say that I buy a building sought after at $100, 000 and I rent it out at $1, 000 a month ($12, 000 a year) then I would be allowed to subtract ($100, 000 / 27. 5) which is about $3636 a year from my taxable income. Which means I only have to pay taxes on $8364 $($12, 000-$3636) for that year not including the other deductions the user gets from real estate.
Having the right property market intelligence will help you find and sell commercial property in any market. Your clients and your prospective customers will expect you to know exactly what's going on out there in the marketplace. The more you know and can talk about will give you the edge in a negotiation to sell a commercial property. Perhaps this is the most important edge when you consider and compete against the offerings of various solutions tendering or quoting for the same property.
So let's look at what the market intelligence needs to be. As you gather ones market intelligence for pricing a commercial property, know or question that the sources of your information are accurate together with reliable. Many times you will have to support your decision on price by reference back to the source of your market information. The market information and facts you use has to be today's prices in the prevailing conditions which are similar to the property you are about to list.
Normally your options for information will be:
Title records are essential to fully understand that you are dealing with the real owners of the property. Make sure that there is not a quick change of ownership going on such as a divorce that could limit the decision facility of the person you are talking to. When circumstances of divorce are underway, the negotiation on commercial property becomes protracted and difficult.
Local Council notes are worthwhile to check if any orders or notice exist on the property at the time of your review. They can have an impact on the price or the interest of buyers when you market the property for sale.
Town plans will tell you what is happening to your precinct and its future. Looking for zoning changes or road changes that impact the property is the first big trouble. Highway changes can affect deliveries, passing trade, access, and many other key property factors. Zoning changes can route the way the property could be used in the future. All of these can frustrate the property use and limit buyer interest.
Lease paperwork will tell you about the cash flow. This is very meaningful if you are a property investor because you are buying the property for the cash flow along with the advantage it brings you.
Survey plans will tell you about the boundaries, the location of the buildings, and the size in the property. Another concern will be any encroachments across boundaries. If in doubt get another survey done.
Many other agents active in commercial property will always have some feedback of relevance. Look at the number of signs that they have standing on properties and assess the time that those properties have been on the market without sale. When times are tougher, plenty of time on market extends. It is a good barometer of buyer sentiment and finance availability in property purchase.
Valuers who are active in commercial property will tell you a lot about the current situation. They also need information from want you to support other valuations.
Sales listings in the area and their location or proximity to your subject property should be considered. They are able to delay or detract from your ability to market a fresh property. Buyers will always look at the fuller market to examine comparable properties. The sale prices from those properties will also be relevant.
Properties for Lease in the area and the openings factor will tell you about business sentiment and interest of those businesses to be located in the region or property precinct.
Produced historic sales and leasing deals in the area will always be of use. Every property is unique and different therefore any sale depth from any other property should be backed up with a review of the property and an inspection of the location.
Architects and fitters are always helpful when you are looking at a property which has physical or structural challenges. Remember also that is not just a constructing that brings you these problems, but also the geography and the demographics of the area.
Your own sales records with past history are always useful. The details of sales from other agencies should also be gathered where the facts is accurate.
Tenancy schedules from other properties are always handy although they should never be regarded as altogether accurate. Many property and leasing managers make mistakes on the tenancy schedules or do not keep them current. When in doubt the only documents you can rely on are the actual leases themselves.
Other owners in the precinct are generally well worth keeping in contact with. They are always interested in other property sales and activity. They will also tell you what people know about the market locally.
Other tenants in the precinct are useful points of contact. In the future they may require another property or home location and hence close contact is a wise strategy. It is however the awareness of the local area that tenants will give out and give you the edge in market intelligence. It is very wise to know all the major tenancies in your area and the selection makers therein.
To lift and move your commercial real estate business forward it is the background market intelligence that can support your activities and negotiations. When you talk from your experience and complete market awareness, you have the sides over any landlord and any tenant; you have the edge over any property seller and any house buyer. In simple terms you can convert more business and more commissions.
John Highman is an expert in investment real estate approach and performance. He is a keynote speaker and coach that helps property investors, and real estate agents globally to boost their commercial real estate property opportunities and targets.