Investing 102

[GregWeld]

By the way -- the post about NOI and Cap Rate is not for those that know this information or understand it. It was - and I should have identified it as such - information for "INVESTING 102".

I personally think everyone that has the ability - should have investment(s) in commercial and/or rental properties. This is another way to diversify your investments... has great long term proven success etc.

Live every other form of investing - they are not without ups and downs, and their own perils. Renters move out leaving you holding the bag... neighborhoods change (fundamental change you must watch out for!)... they require investment for maintenance and even improvement. They are rarely buy it and forget it.

What people forget are some pretty important investment goals such as:


The income (NOI) is, or can be, offset by depreciation for taxable purposes.

You have "dividend" income - or at least an income stream - that should grow over time. Often times this is NEGATIVE in the first few years.

You can have long term appreciation of the asset on top of the cash flow (NOI) generated. This tends to accelerate with time.

If you compute the income created downstream - against your initial investment (down payment) - the return on investment (ROI) can be staggering.

Let's look at this in a very basic way.

You put 50K down on a 200K property. The rental rate is $1,300 a month. That rate just covers your overhead (payment - taxes - insurance). But 5 years later that rent is $1,500... and 10 years later it's $2,000. At 20 years the mortgage is paid off.... and you're not collecting $2,250 a month. Pocketing $1,750 after expenses. That's $21,000 a year in income off your initial $50K investment.

The above is obviously oversimplification - as there will be paint jobs - roofs - appliances - carpets - landscaping - down periods with no renter - or a period with a bad renter... but in the end.... Your $200K house is now worth $375K and it provides $21,000 a year in retirement income. BAM!