Income Property Investment

Income Property Investment

What is a real estate income property investment ("income property investment")?

In theory, anything sitting on land and generating rent would qualify. In reality, there are 3 major types of income property investments.

The first type are the apartment buildings and mobile home parks. These "multi-residential" properties are usually priced using the gross rent multiplier (GRM), which is the selling price divided by the total annual gross rent, before vacancy allowance and expenses (the higher the GRM, the lower the cash flow).

Shopping centers, office buildings and industrial parks comprise the second type and are priced based on the capitalization rate ("cap rate"), which is the lease income, less vacancy allowance and expenses, and before any effect of the financing terms (the higher the cap rate, the higher the cash flow).

This type requires dealing with commercial leases, and therefore a little more sophistication than the muti-residentials.

The third type is the "Single Tenant Retail" or the "Single Tenant Leased". A good example is becoming the landlord of a McDonald's restaurant. McDonald's corporation or franchisee becomes your lessee and typically handles all maintenance, repairs and other chores under long-term true NNN (triple net) leases. Given the ease of ownership and relative security (McDonald's does its homework before locating its restaurants), these properties sell for low cap rates.

So, which type of income property investment is the best?

The answer depends on your perspective on your wealth. Click here if you believe your wealth is yours, and click here if you believe it's a blessing from God.