|
Retire on $75,000 the Investment Property Way
Are you interested in obtaining an investment that will yield a financial income or a secure equity in the future? Fifteen years from now you may want an educational trust for your children's university degree or perhaps a retirement supplement to your pension.
The following scenario is based on current marketing offerings projected over fifteen years at the rate of economic growth and property or real estate values that occurred over the past twenty years. By no means is this guaranteed to be the case but historically real estate has followed a relatively constant pattern despite some major swings up and down.
You're going to purchase a facility with 6 units yielding a net operating income of $4,000 per unit with $75,000 down at a purchase price of $240,000. We'll assume that the projected average mortgage interest rate over the 15 years will be 8% and that the gain in property values average 3% annually. We allowed for a 3% rise in rental rates.
The scenario looks like this:
- After 15 years, the earnings on your $75,000 investment will accrue to $125,000 - an average annual return of about 4.4%.
- After 15 years, the mortgage will be discharged and the building will be worth $396,000.
- The yield on rentals will be $26,000 annually in the first year following the mortgage discharge and will rise to $46,000 annually after 20 years.
In other words, we have a constantly increasing annual pension secured by a fixed asset. But remember that the initial income surplus should be invested for draws in an emergency and mortgages should be insured.
The choice of property is another factor involved in the decision. Income properties fall into several categories and sizes and it may be necessary to invest with a group to acquire larger properties. The investor can become a shareholder in the entity thereby spreading the risk and lowering the initial capital required by each individual to acquire the property.
Shopping plazas, hotels, townhome rentals, apartments, condominiums, commercial and industrial properties are all examples of income properties. Don't forget such things as trailer parks, marinas, storage malls, and parking lots or garages. One of our recently executed parking lot transactions netted $16,000 annually before taxes.
Be cautious of the hotel that sells you a "room." It's better to buy shares in the hotel venture. Timeshare is not considered an income investment except to the owner of the timeshare project.
For the small investor, (under $100,000 capital outlay) lower risk ventures are probably the best. Apartment buildings in a state of good repair and in a good area generally produce a reasonable income on investment with low risk. Be cautious of large commercial ventures unless you can handle periods of low income during economic swings. Although these ventures are often lucrative, you need a cushion to protect yourself in times of low revenues.
Make sure your mortgage is insured, transferable, and fixed for a long duration. You are not in this venture to play short-term money market games. In one case on file, an FBDB bill for mortgage payments from 1980 states the interest rate is 26.72% on a floating interest rate. During 1978 through 1982, many commercial property owners currently pay the interest on their notes. Be careful.
And don't forget your will. Include a provision for transfer of any assets in a proper manner.
Income property investments can lead to future financial security - the path to retirement.
Brian Whitfield is a business broker with Home Life Realty. Brian is a regular contributor to businessmatch-maker.com.
I want to purchase a business.
I have a business to sell.
|
