Stabilized real estate properties are an accepted asset class for investment diversification. The safest assets are those with the following characteristics:
- Macrolocation: A large dynamic market (New York, Washington, D.C., San Francisco, Chicago)
- Microlocation: Well located in the submarket
- Newer construction
- Excellent tenant credit quality, with long-term leases
Stabilized investors are not bargaining on surprises. With knowledge, these investments can outperform stocks and bonds. Yet, the intelligent investor must understand the key components in value added investing:
- Operating history
- Rent roll
- Cash on cash return (the cap rate)
- Leveraged cash on cash return
- Operating expense structure (pass through & stops)
- Leverage structure (underwritten NOI)
- Market/demand drivers
So, do we have a deal or no deal? Below is a review of how to determine if you have the right deal to move forward with.
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