When deciding on a property to buy, instead of just relying on the firm you are working with to pick great properties for you, it’s crucial to understand what they are looking for when picking out properties that will most likely be a lucrative investment. What makes a good property to invest in and how do you pick the right one amongst several options? We will cover the 4 key factors to understand before investing, that any great real estate firm will be using to help you make the best decision with the highest ROI in mind.
Currently industrial and multi-family properties are at the high of the market, with brick and mortar losing some appeal due to the vast increases in e-commerce. With the world going mobile, storage and a place to live have become more of a necessity to consumers and therefore, more of a stable investment.
Specifically in the Las Vegas market, which had a big downturn in 2007, vacancy rates tell a story of how and where the market in recovering. Industrial properties are around a 6% vacancy rate, multi-family are at 4.8%, office is at 21%, and retail is at 9%. Based off of these numbers you can see that industrial and multi-family are the quickest assets to recover from the downturn, while office space is the slowest. The vacancy rate weighs heavily when it comes time to decide on a property to invest in, and if the investment makes sense right now.
So what other factors weigh into deciding if a property is a great investment? Here are four major points any firm you are working with should know and assess:
Location Site. Location, location, location. I am quite sure you’ve heard this before, and it’s still one the top things to consider about a property when assessing its value. You can’t build another beach, and there isn’t going to be another “Las Vegas Blvd”, so a dilapidated building in a great location could prove to be worth the sweat equity, because people are willing to pay the premium on the location.
Zoning Regulations. As far as property use, these keep growth of the city in check. When you are looking at a property to invest in, you want to check the zoning regulations to make sure the space conforms to any requirements and also does not hinder any of your property use.
Market Analysis. This next factor is broken down into a series of factors. Comparables are one of the first things to look at in the market analysis, which are like assets with similar tendency, zoning, and location. Comparables give a market price for the property. We typically look at comparables that are within 6 to 12 months old as a rule of thumb. Anything older in the market can change and can be unreliable to the final market pricing decision. Rental rates also affect the property value. If rates are below market this can add value to a property, and similarly if the rates are above market they can inflate the purchase price artificially. Competition in the area can also positively or negatively impact your property value. A Starbucks next to another Starbucks is not a great investment choice, but if your business is new to the area with little competition this can increase the value. Unemployment is another key factor, and with tons of unemployment lately the inflation rate is low. Finally the absorption rate can tell us a lot about how a property might do. It’s basically supply and demand. If there is a lot of a type of asset out there, the value decreases. If there is a small supply out there, the value increases.
Financial Report. Finally you are going to take everything we’ve mentioned so far and combine the information in a report to get a good overview of the overall value. The report assesses the price per sq. foot and rental rates that are determined by comparables and market analysis, and combining all that will give you a capitalization rate that tells you the net operating income of a property. This number affects resale value of a property. Tenancy is also an important factor, where strong credit, longer term tenants are perceived as a higher value since they bring stability. This means that when looking at a multi-family property questions about what types of tenants will be renting and their income levels are a major factor to consider. Lastly, we factor in the physical condition of the property and assess what types of capital improvement will need to be made. All of this combined gives a solid financial standpoint of the property in consideration.
Combining location site, zoning regulations, market analysis, and the financial report will give you all the information you need to make an informed, smart decision about a property investment, and will lead to higher ROI and a strong investment portfolio.
About the Author:
Joshua “Tree” Barker
Senior Investment Advisor
Joshua “Tree” Barker has found professional success for several years as a commercial real estate investment advisor with Fortis Commercial Advisors. Joshua’s market knowledge and expertise in brokering commercial properties consistently exceeds the investment goals of his clients. Joshua combines his education in business management obtained from Berkley, and his 25 years of local relationships in Las Vegas to create great add-value opportunities for his clients. To deliver the best decision to his clients, their partners, companies, and investors, Joshua uses his strategic skills in planning, underwriting, and transaction management.
Want an example of a great property investment in the Las Vegas market right now based off of these criteria?
Check out this property in the heart of the thriving downtown Las Vegas area, across from the Federal Court House building.
Location, Location, Location!
415 S 6th Street, Las Vegas NV 89101
This is a great property for an owner user; such as a law firm or tech startup that wants to own next to Tony Hsieh and his tech hub. This property is three stories 27,000 square feet, and includes 30 underground parking spaces as well as an additional 37 parking spaces on two separate lots.
Asking price is $5,600,000.00. With downtown heating up and inventory low this would be a great investment to an owner user looking in the downtown area.
Interested or want more information? Contact us here.