In many cities, the value of the land on which a building sits can easily total 30 to 70 percent of the property's total value. I recently looked at two triplexes. Both properties brought in about the same amount of net income, yet one property was priced at $189,000 and the other was priced at $209,000. If I only considered the buildings themselves, the $189,000 property clearly looked like the better buy. But, in fact, the $209,000 property offered hidden value in the site. It turned out that this property's site size (and zoning) would permit a fourth unit to be built. Additional site size might prove valuable for adding on to a building, creating more parking or storage space, or providing better privacy. To evaluate a site, take note of the quality of its landscaping and its egress and ingress (how easily cars can pull in and out of the property).
Although uncommon in small income properties, on occasion you might find that a property includes a swimming pool, tennis courts, or other potentially desirable features and amenities.
When you compare commercial investment properties, recognize that site size and features significantly affect the value of the total property. Make sure you itemize all variations that make a difference. Type of Building As you begin looking at properties, you will find all types of architectural styles, construction materials, and designs. These properties may also range in condition from pristine to borderline tear down. Some are high maintenance; others are low maintenance. When I began to buy apartments, I bought old, large, single-family houses that had been converted into multiple unit properties.
These apartment buildings are priced at the low end of the market; they produce great cash flows; and because they may be difficult to finance through banks, owners often offer seller financing. On the downside, buildings of this type suffer functional and physical obsolescence.
They're typically high maintenance, and they often lack unit-controlled heating and air-conditioning units. Even so, for entry-level investors with limited cash or credit, this type of property makes a great starter investment.
Remember - Buy Low, Sell High - Now is the time
Step-by-Step, Affordable Training Videos on How to Build or maintain a Powerful commercial property Portfolio, covers land, apts, multifam, retail and more!
By: Raymond Pedersen