Let’s get right to it! You invest for profit. Simply put, in commercial real estate investing, your main thrust is to buy properties at a low enough price to allow you to sell at a higher price for a profit.
Remember the adage, “Buy Low… Rent Smart… Sell High”? What is not so simple is, “what is a low price?”. Low price is not the price the seller sets on the property. It’s probably not the price the property down the street sold for (comps). It’s probably not the cost per square foot a contractor suggested. Calculating price is not that simple, nor is it intuitive. The price must reflect the value and they are not always close to each other. The value is determined by an income property’s ability to give you the necessary return on your investment. You must determine what the property’s income is, what your down payment is, and whether there is enough cash flow to earn the rate of return that will justify your purchase of the property. Paying too much for the property could be disastrous! It is not as simple as the three examples listed above.
APODplus is a program that automatically calculates property values. With the help of APODplus, you can compare and analyze a property’s IRR, NOI, Before/After Tax Net Present Values, cash flows, and much more. Use it on all your income properties to help you to buy at the lowest price and the highest return.