INVESTMENT_IN_INCOME-PRODUCING_PROPERTIES.pdf - INVESTMENT IN INCOMEPRODUCING PROPERTIES The Business of Real Estate \u2022 Majority of real estate used by

INVESTMENT_IN_INCOME-PRODUCING_PROPERTIES.pdf - INVESTMENT...

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INVESTMENT IN INCOME- PRODUCING PROPERTIES
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The Business of Real Estate Majority of real estate used by business firm is leased and not owned. Why??? Tenants find leasing to be more cost- effective than owning. Owning require large amount of capital to commit. Purchase of property would “put user in the real estate business” Even if tenant is able to acquire a building, lease is much relevant due to:- Owning will reduce operating flexibility. Owning lead to the burden of managing the building. Owning make it difficult for firm to down size use
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In the end… Real estate industry includes economic function that are specialised in nature. It is separate and distinct from the operation of the many different business activities conducted by tenant-users. These noncore real estate business activities include the risk of:- Selecting the “right tract” of land and developing the “right amount” of space. Leasing the space to many different tenants. Hiring personnel, collecting rents, and maintaining the facilty. Finding financing for the investment or development Doing continuous research about real estate market in order to decide when to sell, raise or lower rents, renovate etc.
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The “Market” for Income-Producing Real Estate In real estate investment, it is important to understand How this competitive market operates Nature of negotiation between owners and tenant-users How owner differentiate between expenses associated with operating building and expenses related to the business operation of a tenant. Property expenses usually allocated by owners to users. Property owner do not pay expenses associated with the operations of tenants.
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Income Potential – Real Estate Assets Market Rent: price that must be paid by a potential tenant to use (lease) a particular type of space under current market condition. Rent level depends on many factors such as:- The outlook of national economy The economic base of the area in which the property is located The demand for the type of space provided by the property in the location being analysed. Supply of similar competitive space.
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Vacancy All space available in a building may not be leased at a particular time. Tenant leave after their lease expired Breach their lease agreement before it expires. Space never been rented, especially for newly constructed building To project income, it is important to project how much space will be occupied. Should always some allowance for vacant space even during where leasing activity is strong. When tenant leave, it take time to make space ready and to re-lease space to new tenants.
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