6 Drivers of Rental Cash Flow Profits

Economic trends are like the movement of the stars. They are always in motion, and once in a great while a unique alignment occurs that has not been seen before, and may not be seen again in our lifetimes. Just such an alignment of factors is now occurring, and for the real estate cash flow investor it represents probably the greatest opportunity we may have seen.

Let’s take a look at the 6 factors that are driving this unprecedented opportunity:

1)      Record Low Interest Rates – Interest rates are at low levels that we have never seen before, and the Fed (for the time being) is keeping them at these record low rates. This means that the interest rate as a percentage of cash flows has never been lower.

2)      Low Housing Prices – On a national level housing prices have crashed to a pre-2000 level. The current affordable housing prices combined with the low interest rates have created a situation where the cost of mortgage payments have seen a total inflation adjusted reduction of 49% over a five year period.

3)      Increasing Rental Demand – Since 2006 there has been a basic shift underway moving from home ownership to rentals. This shift to rentals strongly favors the cash flow investor.

4)      Decreasing Vacancy Rates – The demand factor is driving rental vacancy rates to very low levels. Nationally rates are under 10%, and in major metropolitan areas can be as low as 5% or less.

5)      Decrease in New Construction – New rental units, as well as new housing starts remain depressed. While there have been some signs of life recently in the building sector, the current economic conditions are keeping the building sector from taking off.

6)      Increasing Rental Rates – The above factors are contributing to rising rental rates. It has been projected that rates are expected to continue to rise in many markets above the rate of inflation.

As you can see the factors outlined when combined create what is a real opportunity for the cash flow investor. Add to this that inflation alone is likely to increase housing values at a healthy rate over the coming years, and you can see what a powerful investing opportunity is sitting in front of us.

What Small Business CEO’s Think About Economic Growth

Interesting Infographic detailing a CEO Confidence Index survey courtesy of vistage.com. The infographic is a snapshot of current business trends based on the Q1 2012 Confidence Index results which reflect a surge in economic optimism about the year ahead.

CEO Confidence Index

The Commercial Broker – Do You Have One?

When looking to buy or sell a home, one of the first things most people do is engage their own Real Estate Agent (or “Broker” depending on the vernacular of your location).

Many medium to large size corporations will have entire groups dedicated to the acquisition, and management of their retail locations.

And the small business owner? In many cases the acquisition of a commercial space looks something like this:

  • Get the business plan, and financing squared away
  • Go through some level of due diligence to determine the right location & type of property
  • Do some on-line searches and burn some shoe leather lining up the right property
  • Pick-up the phone and call on the properties identified

In this scenario this is the first point at which a Commercial Broker enters the picture, and it’s the broker that has been contracted by the property owner. Now don’t get me wrong, the professional Commercial Broker typically does a great job representing both sides of the transaction.

Here’s my point – when engaged as a member of your professional team, a Commercial Broker can bring their business acumen, and unique perspective much earlier in the process resulting in a better overall decision. The fact that you now have a professional member of your team who understands your business needs in depth, and will represent you and your needs in all negotiations doesn’t hurt either.

A Commercial Real Estate Broker on your team will lead to better decisions, and can ultimately improve your bottom line. It’s the most cost effective business consulting you will ever receive.

There are some very good tips on selecting a broker contained in this article.

If we can answer any questions, or be of service, please drop us a line at info@axiomre.com.

Lease Option – The Time is NOW

Are we at or near the bottom of market prices on commercial property?

As a small business owner, if you’ve ever considered owning commercial property then the answer to this question is key to what’s next for you. But in this economy who has the down payment to take this kind of a step? Enter the Commercial Lease Option.

A Lease Option put simply is a commercial lease that includes an option to purchase the property at the end of term, for an additional fee. The term is negotiable, the seller will typically prefer a shorter term, say three years, but we have seen terms as long as five years. And here are the keys for you as the holder of the option:

  1. You can lock in a future purchase at today’s prices and,
  2. You gain control of property without direct ownership for the term of the Lease Option.

Not every seller will be open to the idea of a Lease Option, but in the current market environment there are many for whom this can provide an attractive solution. For the seller the Lease Option provides a stable tenant and a property buyer in one transaction. Additionally the seller receives the additional income of the purchase option payment for the term of the lease.

The Lease Option can be applied to almost any type of commercial purchase. If you simply want to own your own space then a small commercial building, or commercial condominium might be the right choice. If you are looking to generate additional income then a property with multiple tenants might be the way to go.

In any case a Lease Option is a great tool for taking that first step to building additional wealth in your business. As with any lease transaction, we always recommend you have your own commercial agent on your team. It costs you nothing as the leaser/buyer, and can make all the difference in what is inherently a complex transaction.

If we can ever answer any questions, or be of service to you please drop us a line at info@axiomre.com.

10 Reasons Why You Should Buy

There are many reasons to consider purchasing your business property rather than leasing. Here are some of the more pertinent:

1) We are in all likelihood at or near the bottom of market prices
2) Mortgage rates are historically low
3) Purchasing provides your business with a predictable monthly outflow (no rent increases)
4) Purchasing allows you to increase equity thru amortization
5) Purchasing allows you to increase available cash flow thru depreciation
6) Purchasing allows you to increase personal wealth thru appreciation
7) Purchasing your space allows you to write off improvements
8) Purchasing is in effect forced savings through principal payments
9) Effective use of the Lease-Option could provide you further leverage by locking in today’s prices on a purchase in 3 to 5 years.
10) Purchasing is an investment in you, your business, and your family that will pay-off over the long haul

Have questions, or would you like a free lease vs buy analysis for your business? Please drop us a line at info@axiomre.com.