Life Changing Real Estate Secrets by Steve Ross

Author:Steve Ross
Language: eng
Format: epub
Tags: BUSINESS & ECONOMICS / Real Estate / Buying & Selling Homes
Publisher: Outskirts Press
Published: 2023-05-29T00:00:00+00:00

CHAPTER 2

Improving Value with Income-producing Property

AN INCOME-PRODUCING PROPERTY is any property that generates income. For example, apartment complexes, duplexes, rental houses, etc. Income-producing property value is assessed by its return. The return from a property is any profit you make. Typically, the net operating income dictates the value of that asset. Net operating income, (NOI) is a profitability formula that is often used in real estate to measure a income properties profit by calculating the income after all operating expenses are deducted. In other words, it measures the amount of cash flows that a property has after all necessary expenses have been paid. We can buy a property with a net operating income of $100,000 at an 8% return rate. We will pay $1,250,000 and improve that value by increasing the net operating income to $125,000. Typically, if we can improve the net operating income by 25%, then the resale price of that property will be 25% more, or $1,562,500.

We look for deals that are below market. “Below market” means a price that is lower than the current market price. We look for these because the rents are typically below market as well. Please understand that we are looking for below market rents. Basically you do a rent Analysis on the property comparing with other similar properties in the area if the rent is 20% below similar properties in the area, then you have room for the income to increase. The same goes if the rent is at or above market then, you realize that you cannot increase rent. Therefore that property has very little upside.

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