General Area in Glendale>Question Details

Keith Sorem, Real Estate Pro in Glendale, CA

What are the key parameters when purchasing income property?

Asked by Keith Sorem, Glendale, CA Mon May 21, 2007

Selecting income property is different than purchasing a home. What are the key differences and why are they important?

Help the community by answering this question:

Answers

4
Clancy Fort’s answer
There are lots of keys depending on you strategy and how much work you are willing to put into the property.

What is your investment strategy? Appreciation or Income. If you picked appreciation, you're probably buying a plex, condo or single famly home. These appreciate with the market and use conventional financing. If you picked income, you need to run the numbers to figure out what you probable income is and you are probably looking at properties bigger than 4 units.

Maturity - When does the property mature (i.e. How long before it is profitable?) Granted...I'm in California, where finding a mature property from the start is a difficult proposition. The general rule is that you should get to maturity in 18 months based on your initial equity level. If you're doing a 1031 exchange you should reach maturity immediately.

As a general rule, plan on buying for the long term. This will take market conditions out of the equation. At least in California over the long term the property will appreciate and the rents will go up. The longer you hold it the more money you make.

This advise is California specific. If you are looking in other areas in the nation, you should be looking for mature properties from the start.

here are two basic rules to follow which should keep you out of trouble...
1. Never pay market for the property...find the deal.

2. You're not going to live in it. It's an investment. Don't buy it because it's pretty. Buy it because it makes money.
1 vote Thank Flag Link Wed May 23, 2007
KEITH,
HI MY NAME IS LISA FROM OHIO AND I REALLY WISH THAT YOU WOULD NOT MAKE ME SOUND STUPID . This is a forum for people that have questions....this violates Trulia community guidelines... THIS IS YOUR ANSWER TO MY QUESTION ABOVE ! I JUST LIKE YOU TRY TO GET MY VOICE HERD AND MAYBE HOPE FOR A GREAT OUTCOME FROM THIS SITE .
0 votes Thank Flag Link Tue Oct 21, 2008
Keith,
I am a firm believer in the value of investing in real estate. Cashflow is key, that is, the ability to cover expenses with the income from the property. In fact lender for commercial property and 3+ unit residential income property will probably require that the income from the property cover all expenses including the loan payments (debt service).

There is a great book called the Cashflow Quadrant (part of the Rich Dad, Poor Dad series) that is a good introduction to the subject.

Working with a professional with experience purchasing and owning investment property is a good place to start. Feel free to call me at (818) 281-1284 to discuss any of your investment real estate needs.
0 votes Thank Flag Link Thu Apr 17, 2008
What's key is to make sure your rental income will cover your out-of-pocket costs. That includes the mortgage payment on the property, as well as taxes, insurance, maintenance, repairs and a vacancy rate of around 5%. (If you have five units, for example, you should expect at least one unit to be empty three months each year. Here's the math: 5 units times 12 months equals 60; 60 times .05 is 3.)
Web Reference: http://www.flippingpad.com
0 votes Thank Flag Link Mon May 21, 2007
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer