What is an investment property?
An investment property is a real estate property that is purchased with the intention of earning a return on the investment, either through rental income, or the future resale of the property. Sacramento has many types of investment properties. Investment properties can include single-family homes, multi-unit buildings, commercial buildings, and more.
An investment property is real estate that’s purchased with the exclusive purpose of generating a profit. Unlike a primary residence or a secondary home, an investment property is not something you’d typically own for personal use. Income and appreciation is the goal of many real estate investors.
What are the types of investment properties?
There are various types of investment properties, which include:
- Single-family homes
- Multi-unit buildings (duplex, triplex, fourplex)
- Apartment buildings
- Townhouses
- Condos
- Vacation rentals
- Mobile home parks
- Storage units
- Office buildings
- Retail spaces
- Warehouses
- Shopping centers
- Mixed-use developments
- Industrial properties
- Self-storage facilities
- Hotels and motels
- Land
- Real Estate Investment Trusts (REITs)
Here is more detail of several types of investment properties:
- Single-family homes: These are individual houses that are typically rented out to qualify as an investment house. Some real estate investors rent out part of the home on a short term bases like an ABNB or long term room rental.
- Multi-unit buildings: These are properties that have multiple units, such as apartments or duplexes that can be rented out to multiple tenants. Multi-family buildings are residential property. Residential property refers to buildings that are intended for use as a residence or dwelling. Sacramento, California has many quality residential investment opportunities.
- Commercial properties: These are properties that are used for business purposes, such as office buildings, retail spaces, and warehouses. Commercial properties need a full due diligent process and understanding of all the various types of leases, like triple net.
- Vacation rental properties: These properties are rented out on a short-term basis, such as a vacation home or a vacation rental unit.
- Development properties: These are properties that are purchased with the intention of developing them into something else, such as a new housing development or a shopping center. The property starts as land or a building that does not meet current demand.
- Self-storage facilities: These are facilities that are rented out to individuals or businesses to store their goods and equipment.
- Mobile home parks: These are properties that are rented out to individuals who own mobile homes, which are placed on the property.
It’s important to note that different types of investment properties will have different benefits and risks, and investors should carefully evaluate the potential returns and risks before investing. To help find real estate investments an experienced real estate consultant like Dan Parisi can help.
What properties generate income?
Properties that generate income typically include rental properties, commercial properties, and REITs.
- Rental properties: These can include single-family homes, townhouses, condominiums, and apartments. Residential properties can be owner-occupied or rented out to tenants, and they can be part of a larger residential complex or a standalone property. Residential properties can be found in various neighborhoods and cities, and their value can be influenced by factors such as location, size, and condition.
Residential properties can generate income through rental income and appreciation, but they also require ongoing maintenance, management, and repairs. It’s important to do a thorough analysis of the property and the local real estate market before investing in a residential property, in order to understand the potential returns and risks.
- Commercial properties: Commercial properties refer to real estate that is intended for use in business activities, such as offices, retail spaces, warehouses, and more. Commercial properties can include standalone buildings, shopping centers, and mixed-use developments that combine commercial and residential spaces.
Commercial properties generate income through rental income and appreciation of the property. The tenants of commercial properties can include businesses of all sizes, from small startups to large corporations. The rental income from a commercial property is typically higher than that of a residential property, and the leases tend to be longer-term.
When investing in commercial properties, it’s important to consider the location, condition, and potential for future growth and development. Factors such as the local economy, transportation, and demographics can all affect the potential returns and risks of a commercial property investment.
Additionally, it’s important to understand the different types of commercial properties and the specific demands and needs of the different business types that may be interested in renting the property. Faith based commercial investor can be very helpful to ministry special purpose buildings.
- REITs: These are companies that own and operate income-producing real estate, such as office buildings, apartments, and shopping centers, and shares of the trust are sold to investors as a way to invest in real estate, and they generate income by paying dividends to shareholders. You can own REITs that have properties outside of California to diversify your real estate portfolio.
It’s important to note that while these properties generate income, they also require ongoing maintenance and management, which can be costly. The income generated also needs to be enough to cover the costs associated with the property and to generate a return on investment. Additionally, the income generated may be subject to taxes and other regulations.
Many commercial properties do a triple net lease. What is a triple net lease?
A triple net lease (NNN) is a type of commercial lease agreement in which the tenant is responsible for paying all of the ongoing expenses associated with the property, in addition to the base rent. These expenses typically include property taxes, building insurance and common area maintenance (CAM) expenses. The tenant is also responsible for maintaining and repairing the interior of the leased space.
The “triple net” refers to the three types of expenses that the tenant is responsible for paying: property taxes, insurance, and CAM expenses. These expenses are in addition to the base rent and are typically paid on a monthly or annual basis.
This type of lease is often used for commercial properties such as retail spaces, office buildings, and industrial warehouses. The tenant is responsible for all the expenses associated with the property and the landlord is relieved from that responsibility. This type of lease is beneficial for landlords because it allows them to pass on the expenses of the property to the tenant and reduces their risk. For tenants, it can be advantageous because it allows them to have more control over the property and the expenses associated with it.
It’s important for tenants to understand the terms and responsibilities of a triple net lease before signing it, and to accurately estimate the cost of the expenses they will be responsible for paying. This is important to avoid any future financial difficulties and to make sure that the property is profitable.
How do you fund a real estate investment property?
There are several ways to fund a real estate investment property, including:
- Cash: Cash real estate investing is the simplest and most straightforward way to purchase a property. If you have the cash on hand, you can buy the property outright without having to worry about financing or interest payments. If you are looking to sell a property for cash check the fair market value of Coffee Real Estate “as is” cash buyer program.
- Conventional Mortgage: This is a loan from a bank or other financial institution that is typically used to purchase a primary residence or a rental property. The loan is secured by the property, and the lender will require a down payment and a good credit score.
- FHA loan: This is a government-insured loan that is available to buyers with a lower credit score or less cash on hand. The Federal Housing Administration (FHA) insures the loan, which makes it less risky for the lender and allows buyers to qualify for a loan with a down payment as low as 3.5%.
- Hard Money loan: This is a short-term loan that is typically used for fix-and-flip or other real estate investment projects. Hard money lenders typically focus on the value of the property rather than the borrower’s creditworthiness, and they charge higher interest rates and fees than traditional lenders.
- Private Money loan: These are loans that are provided by private individuals or groups, usually real estate investors, instead of traditional financial institutions. Private money lenders are usually more flexible and can offer faster funding and more creative financing options than traditional lenders.
- Home Equity loan: This type of loan allows you to borrow against the equity you have built up in your primary residence. This can be a good option if you have substantial equity in your home and are looking to invest in another property.
- Partnering or Co-investing: This is a way to invest in real estate by partnering with other investors or finding a co-investor to help fund the purchase.
Each of these funding options has its own set of advantages and disadvantages and it’s important to carefully evaluate the potential returns and risks before investing. It’s also important to remember that financing options are subject to change depending on the market conditions, creditworthiness, and regulations.
What are some commercial property loan types?
There are several types of commercial property loans, including:
- Conventional Mortgage: This is a loan from a bank or other financial institution that is typically used to purchase a commercial property. The loan is secured by the property and the lender will require a down payment and a good credit score.
- SBA loan: The Small Business Administration (SBA) offers loan programs that can be used to purchase a commercial property. These loans are backed by the SBA and have more favorable terms than conventional loans, but they are typically more difficult to qualify for.
- CMBS (Commercial Mortgage-Backed Securities) loan: This type of loan is backed by a pool of commercial mortgages and is sold to investors on the secondary market. The interest rate on these loans is typically higher than on conventional loans and they are usually used for larger commercial properties.
- Bridge loan: This is a short-term loan that is typically used when a property is being purchased before long-term financing is in place. They are often used to purchase properties that need rehabilitation or to bridge the gap between the purchase of a property and the closing of a long-term loan.
- Mezzanine loan: These are higher-risk, higher-return loans that are used in conjunction with a traditional loan to fund a commercial property purchase. They are typically used for larger, more complex transactions and are structured as a subordinate loan.
- HUD loan: The Department of Housing and Urban Development (HUD) offers loan programs that can be used to purchase a commercial property. These loans are backed by the HUD and have more favorable terms than conventional loans, but they are typically more difficult to qualify for.
- Construction loan: This type of loan is used to finance the construction of a new commercial property or the renovation of an existing one. They are usually short-term loans and are typically used to finance the cost of building a new property or to refinance existing construction debt.
The choice of loan will depend on the specific needs of the borrower, the type of property and the stage of the project. It’s important to understand the terms, interest rates and fees associated with each loan type before making a decision.
What are some commercial property loan terms?
The terms of commercial property loans can vary depending on the lender, the type of loan, and the borrower’s creditworthiness. Some common terms include:
- Loan Amount: This is the amount of money that is being borrowed to purchase the property.
- Interest Rate: This is the percentage at which the loan accrues interest. Interest rates for commercial property loans can be fixed or variable.
- Loan-to-Value Ratio (LTV): This is the ratio of the loan amount to the value of the property. LTV ratios are used to determine the amount of the down payment required and the risk to the lender.
- Amortization: This is the process of repaying a loan over time through a series of regular payments. Amortization schedules can vary, but most commercial property loans are amortized over a period of 20-30 years.
- Maturity: This is the date on which the loan is due to be fully repaid. Maturity dates for commercial property loans can vary, but they are typically longer than for residential loans.
- Collateral: This is the property that is used as security for the loan. In the case of commercial property loans, the property being purchased is typically used as collateral.
- Prepayment Penalty: Some commercial property loans include a prepayment penalty, which is a fee that is charged if the loan is paid off early.
- Balloon Payment: Some commercial property loans include a balloon payment, which is a large payment that is due at the end of the loan term.
It’s important to understand the terms of a commercial property loan before signing on the dotted line, as they can have a significant impact on the overall cost of the loan and the ability to repay it. It’s also important to shop around for the best loan terms and to work with a lender who specializes in commercial property loans.
What is cap rate?
Cap rate (Capitalization Rate) is a financial metric that is used to evaluate the potential return on a real estate investment. It is calculated by dividing the net operating income (NOI) of a property by its current market value or purchase price. The cap rate is expressed as a percentage and is used to compare the relative profitability of different properties.
The formula to calculate the cap rate is:
Cap Rate = Net Operating Income (NOI) / Market Value (or Purchase Price)
For example, if a property has an NOI of $100,000 and a market value of $1,000,000, the cap rate would be 10%.
A lower cap rate generally indicates a lower return on investment, while a higher cap rate indicates a higher return on investment. The average cap rate for a particular area or asset class can be used as a benchmark to evaluate the relative attractiveness of a particular property.
It’s important to keep in mind that cap rate is only one metric to evaluate the profitability of a property, and it does not consider the timing of cash flows, financing costs, and the potential for future appreciation or depreciation of the property. Additionally, cap rate can vary depending on the location, market conditions, and quality of the property. Therefore, it’s important to consider other factors such as cash flow, appreciation, and tax benefits when evaluating the potential returns on a real estate investment.
What is IRRR?
IRRR (Internal Rate of Return) is a financial metric that measures the profitability of an investment over time. It’s a widely used metric to evaluate the performance of real estate investments, as well as other types of investments such as stocks, bonds, and private equity.
The IRRR is the discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. It is often used to compare the profitability of different investments, as well as to evaluate the potential returns of an investment over time.
The formula to calculate the IRRR is:
IRRR = (1 + (Net Present Value / Initial Investment))^(1/n) – 1
Where Net Present Value is the difference between the present value of cash inflows and the present value of cash outflows, Initial Investment is the initial cash outflow and “n” is the number of periods in the investment.
The IRRR is typically expressed as a percentage and can range from 0% to 100% or more. A higher IRRR indicates a more profitable investment with a higher return on investment. IRRR is a powerful tool to evaluate the profitability of an investment over time; it also takes into account the time value of money, as well as the cash flows generated by the investment. However, as with any metric, it’s important to use it in combination with other metrics and not to rely solely on it to evaluate the performance of an investment.
What is BRRR?
BRRR (Buy, Rehab, Rent, Refinance) is a real estate investing strategy that is used to acquire and improve properties, and then refinance them to pull out cash for future investments. The strategy is often used by real estate investors to acquire properties at a discounted price, improve them, and then refinance them at a higher value, allowing the investor to pull out cash for future investments while still maintaining ownership of the property.
The steps of the BRRR strategy are:
- Buy: The investor acquires a property at a discounted price, often through a short sale, foreclosure, or auction.
- Rehab: The investor makes necessary repairs and improvements to the property to increase its value and rental income.
- Rent: The investor rents out the property to tenants, generating rental income.
- Refinance: Once the property is fully improved and generating rental income, the investor refinances the property to pull out cash while still maintaining ownership of the property. The mortgage interest rate is important to the profitability of the purchase.
The BRRR strategy allows investors to acquire properties at a discounted price, improve them, and then refinance them at a higher value, allowing the investor to pull out cash for future investments while still maintaining ownership of the property. It’s important to note that the success of this strategy depends on the local real estate market conditions, rental demand, and the investor’s ability to properly manage the property and generate rental income.
It’s also important to note that refinancing can have its own set of costs and requirements, and the investor should carefully evaluate the potential returns and risks before proceeding with this strategy.
What makes for a successful real estate investment strategy?
A successful real estate investment strategy would involve a comprehensive analysis of the local real estate market, including factors such as location, rental demand, and property values. It would also involve a thorough evaluation of the potential returns and risks associated with different types of properties and financing options.
The strategy would also consider the investor’s goals, resources and risk tolerance. A successful strategy would aim to generate positive cash flow from rental income, and also consider the potential for appreciation of the property over time.
The strategy would also involve proper property management, including finding and retaining quality tenants, and taking care of ongoing maintenance and repairs.
Additionally, a diversified portfolio with different types of properties and different markets can help minimize risk and increase the chances of success.
In summary, a successful real estate investment strategy would involve a thorough analysis of the market conditions, a careful evaluation of different properties and financing options, proper property management, and a long-term approach to investing, with a diversified portfolio.
Investment properties sold by Dan Parisi – Coffee Real Estate
Investment property in East Sacramento CA
Coffee Real Estate Sold this East Sacramento investment property. Investment properties come in all sizes. This well maintained duplex with steady renters sold quickly to an investor. Both units have large rooms, one unit has sun-room and nice size yards with garage.
Selling a investment property home in Sacramento
Dan Parisi both sold and found the best buyer for this investment property.
The Rosalind Street home in Del Paso Heights, Sacramento had a very important hidden value for one type of buyer. Dan Parisi used his real estate marketing skill and highlighted that feature and the right buyer made a quality offer and the property sold. Let Coffee Real Estate find the hidden value in your property and sell it for more money.
This Sacramento property was in very poor condition but sold in “as is” condition. There were permit problems and code problems. One building was not able to house clients. And the main building needed a complete remodel. But there was a strong value for the right buyer.
Inherited property can be sold in any condition
The important issues when inheriting a property is understanding all the financial issues. Also keeping the property in sellable condition. This investment property need very special marketing to sell in “as is” condition. This property had a problem tenant that had to be dealt with before we could sell it. It is important to get a home inspection when buying properties in poor condition. Veterans can get VA loans to help. Houses inherited in Sacramento County and Placer County California have state laws governing how and when they can liquidate the estate including the real property.
