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Summer 2007 Building
Your Assets The e-Newsletter dedicated to helping you build your assets with a focus on real estate and other beneficial ideas A joint publication of www.odonnellhomes.com and www.odonnellproperties.com In this
issue you will find:
Create an Asset Your
Company Will Use Leasing
office space certainly makes sense for some business owners (For those that
it does, please see our current featured lease property in
Peachtree Corners). Others
can benefit from owning their own office space. For an example, see this issue’s success
story below. When is buying an office
right for you? ·
Cash
Needed: Of course, when buying, more cash is needed up front for the down
payment on the building, typically 15% to 20% of the value of the building,
but it can be well worth the investment. ·
Space
Requirements: Buying the “perfect size” building for your current needs can
seem great, but be sure to plan for your future business growth as well. ·
Fixed
costs: When leasing, your rates can vary by being tied to an escalation
clause, but when buying and financing with a fixed rate loan, you will know
your costs. ·
Appreciation: Typically real estate appreciates in value
over time, so by owning the building, you will reap the benefits of the
appreciation rather than your landlord. ·
Cash
Flow: You can also set-up a separate entity, such as an LLC, to purchase the
building and then lease the space to other businesses, including your own, so
your investment provides you with a positive cash flow. If you
would like to explore the possibilities further, we stand ready to assist you
in this process. Success Story –
Buying an We
recently closed on an office building that will yield a positive cash flow
for the owner-occupant. Here is an
excerpt of what the owner said: "The
company I own has been renting office space for over 20 years and we've been
paying a landlord. Now, my company will be in a newer space, a better
location, paying a lower price per square foot, and instead of paying the
landlord, it's going to me, personally. Plus, I was able to put less
money down than budgeted and the investment will provide a cap rate over
9% and a cash on cash return over 15% - I just wish I had done this sooner." Bonus from
Patrick: As the agent representing the buyer in this transaction, I saw the
value of the investment and offered to provide some of the down payment for a
portion of the ownership. This
resulted in the buyer having to supply less cash up front. If you are looking to buy and the
conditions are appropriate, I would make the same of offer to you. Education: Investment
Terminology – What is Cap Rate and Cash-on-Cash Return? When investing, the greatest asset you
have is your mind, so this section is for helping you become educated in
terminology, which is an important step to success. Quite
often when buying commercial real estate, investors refer to the Cap Rate as
the standard of valuation, but we also want to be sure to look at the
Cash-on-Cash Return. Both of
these are quite simple calculations.
What are they and how do you calculate them? The Cap
Rate or Capitalization Rate is simply the ratio used to estimate the value of
income producing properties. It is the
Net Operating Income divided by the sales price or value of the property. For
example, let’s say a property has a Net Operation Income (NOI) of $80,000 and
the sale price is $1,000,000. So, the
Cap Rate = $80,000 (NOI) / $1,000,000 (sale price) = 0.08, or 8%, so your Cap
Rate is 8%. Cash-on-Cash
return simply shows the before-tax cash income (annual income) on the cash
invested (total amount invested or down payment), or Cash-on-Cash return =
Annual Income / Total Investment For
example, let’s say you buy a $1,000,000 property with a down payment of 15%,
or $150,000. After you collect the
rents and pay all of the expenses, including the debt service, you are left
with a before-tax cash flow of $14,000 per year. Therefore,
$14,000 (your annual income) / $100,000 (your investment in the down payment)
= 0.093, or 9.3%, so your Cash-on-Cash return is 9.3%. The target
Cap Rate and Cash-on-Cash Return depends on each unique situation. For a point of comparison, many bank
accounts offer a return of less than 1% or a CD may return 4 or 5%. We are happy to work with you to find
investments that meet your target return goals. Wellness Tip to Help You
Take Care of Your Most Important Asset – You While real estate is certainly an
important asset, you only have one you, and taking care of your mind, body
and soul is essential to a complete life.
This section highlights a tip to help you take care of yourself. Eat More Often and
Look and Feel Better by Speeding Your Metabolism In this
age of crash diets and magic pills to help you look and feel better, like
most things in life, magic pills don’t work, and hard work is the key to
success. Instead of dieting this
summer, return to the days when it seemed you could eat whatever you wanted
by firing your body’s engine. Even
though this is an old article, it more than any other article summarizes the
best way to boost your lifestyle to start taking care of your body. Yes, it is from Men’s Journal, but ladies
you can benefit from this advice too.
Eating more (4 to 6 small, healthy meals per day), and making sure to
include a healthy breakfast to kick start your day is essential. Also,
include weight training as part of your workout to build muscle so it will
burn calories all the time rather than only cardio training that will
primarily only burn the calories while you are exercising. Of course, before starting any exercise
program, consult with your physician. Using Your Assets to
Give Back to Others We have a firm belief that we have
been blessed in this life and feel it is very important to use our assets and
abilities to serve those that need it most.
This section highlights an organization, cause or initiative that is
doing just that.
The Reach
for Excellence Program is an Atlanta-based tuition-free program that prepares
talented middle schools students to succeed in challenging high school and
college preparatory programs. This is a
fabulous organization that really is making a positive difference in the
lives of young adults in our community.
We have supported Reach for Excellence through monetary donations and
by volunteering our time. For more
information or to donate, please visit www.reachforexcellence.org Featured Product to Help
You Make the Most of Your Assets This section highlights a tip,
program or product that we have found useful and think that you will as well.
Motto
Magazine’s tagline “Purpose. Passion. Profit.” sums up the meaning behind
this magazine. It is for people
seeking a more personally fulfilling and socially responsible route to
business success. Motto focuses on
work life balance, career success through loving your job, leadership,
values, meaning and giving back to society. We subscribe to this magazine are
strong believers in its philosophy. For more
information or to subscribe, please visit www.whatsyourmotto.com/ Wise Words – A Quote to
Inspire “Go confidently in the direction of your dreams and live the life you
have always imagined” ~
Henry David Thoreau
Disclaimer:
With any investment, risk is involved, and it is always advisable to check
with your legal and tax professional before making investment decisions. This
communication, including any attachments, is not intended or written to be
used for the purpose of providing tax or legal advice. Prudential Real Estate brokerage
services are offered through the independently owned and operated network of
broker member franchisees of Prudential Real Estate Affiliates, Inc., a
Prudential Financial company. Prudential is a registered service mark of The
Prudential Insurance Company of |
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