So you want to buy your first real property investment. That’s great! Do you catch yourself wondering about what questions to ask before investing? Don’t worry, we all talk to ourselves around here. Here are some examples of commonly asked questions:
“What kind of return should I hope to achieve?”
“Should I invest for the long term?”
“Should I use the income from my investment to live on?”
“Is it better to invest for the long term appreciation and value?”
“Should I buy with cash or take on debt?”
"Am I more comfortable with Residential or Commercial?"
These are pretty detailed questions and there is not one correct answer. You will need to do some research for your specific circumstance. Having knowledgeable professionals on your team is a great way to be able to sift through a lot of data and feel comfortable with the process. Every question cannot be answered with just one blog post, so here are some of the very first thoughts you should take into account.
If the property you are interested in is income producing, the initial step is to ask what the expected rate of return is. At the time of this post, 10 year US Treasury notes and bonds yield about 2.73% (“safe money rate”) if held to maturity. This type of investment can be easily converted to cash. Real estate is not a liquid investment so certain considerations should be made. You should consider a gross up of the yield percent for the purchase of real estate when comparing against tax exempt bonds. The reason behind the yield being grossed up is for the risks you are taking. Risks include holding the asset over a long period of time, interest rate, inflation, and tax risk. It is our recommendation to add a minimum risk factor range of 5%-6% to the safe money rate. The safe money rate described above was 2.70% For this example, the math would be: 2.70% + 6.00% = 8.70%
You should consider the purchase of a real estate investment property IF the asset returns about an 8%-9% or better yield on your equity. This is just a rule of thumb. It can vary depending on many factors specific to you or the market in general.
Message us if you are thinking about investing and have questions! As a Commercial Real Estate firm we are more than qualified to to help you find your first investment property for your specific situation and needs.
LaGree Associates, L.L.C., is a full service commercial real estate company located in Oklahoma City, Oklahoma USA. This site contains company information, agent profiles, Oklahoma City community information and our current real estate listings.