Income-producing real estate, check-list before investing

Income-producing real estate which creates an annual income? If you plan to create your own portfolio of income-producing real estate, here is a brief “checklist”. It is the list of the checks that you should do prior to purchase income-producing real estate. In addition, some tips on how to minimize risk and maximize your profits. We are at your disposal to help you find your way among the various types of income-producing real estate available on today’s real estate market. Contact us and we’ll be glad to make a free consultation!

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Income-Producing Properties

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Income-producing real estate – What type of income-producing real estate?
The range of income-generating property is wide. Offices, entire office buildings, or retail in the High Streets in the Fashion districts. But even logistics centres, nursing homes, private clinics, telephone exchanges. Or entire shopping centres, tenanted residential complexes, hotels and resorts. Furthermore, you prefer to purchase a newly constructed or an old building?

Income-producing real estate – In which area?
Pay attention to the location. If you invest in the acquisition of a historic building in the historical centre you never go wrong. Especially in some areas, such as the Fashion quadrilateral in Milan. Or the area between Via Condotti and Piazza di Spagna in Rome. In those areas, the real estate value is only going to grow over the years. And over there income-producing real estate and commercial real estate for rent are in great demand. In the unlikely event that the tenant of a store in Via Montenapoleone should leave, you can be sure that the property will not remain vacant for a long time. Unfortunately, we can not say the same for an equal size store located in the suburbs.

Thus remember. Also for income-producing real estate, apply the same concept… Location, Location, Location!!!

Income-producing real estate – Which risk you are willing to take?
Regardless of personal taste, even for income-producing real estate, it is worth considering that some areas are a bit more at risk than others. For example, a few years ago buying bank branches was considered a safe investment. Today is risky, because of the many closures of bank branches as a result of mergers or because of their network rationalization. Then, evaluate carefully in which area you choose to invest in income-producing real estate.

Income-producing real estate – In which sector?
Retail in High Street (i.e. stores in Fashion Districts) will always go very well. The same applies to offices in the historic centre. In Europe also entire shopping malls work well. Also logistic centers (properties in suburban areas near toll highways and airports) are growing rapidly. Even with the advent of online shopping on the Internet, there will always be a need for logistics centres transited by goods waiting to be delivered. An example? In 2017 Amazon alone will invest in logistics centres around 60 billion euro.

Income-producing real estate – Guarantees on regular rental payment
If you buy an income-generating apartment be aware that it is virtually impossible that an individual is able (or willing) to issue a bank guarantee to secure the regular rental payment. As a result, you have a higher risk of not getting paid if the tenant is in troubles. If you acquire a property leased to a company in the contract conditions you can include a bank guarantee for the regular payment of the rental fee. It is better to give priority to income-producing real estate leased to companies even if, in some cases, also residential income-producing real estate can have guarantees on payments, like some apartments in resorts managed by large tour groups, who pay you a flat rate, regardless of the actual apartments’ percentage of occupancy. Contact us for more info.

Income-producing real estate – Rental fees are indexed?
Protect your inflation performance, providing in the contract that the rental fee annually reevaluate. Generally, such a contractual clause in Italy provides that the annual increase of the rent is equal to 75% of the ISTAT (Italian Statistic Institute) index.

Income-producing real estate – Rental contract duration
If you purchase income-producing real estate, If purchases income-producing real estate, check that the rental contract expiration is not too close. In that case, try to negotiate the renewal of the contract before you buy the income-producing real estate (you can also insert a clause in the preliminary purchase agreement, which will be subject to the renewal of the lease, otherwise null).

Income-producing real estate – Break option
Also check after how many years the tenants of income-producing real estate, can break the contract and if the rental contract provides for penalties to be paid by tenants in this case.

Income-producing real estate – Have you already planned an “exit strategy”?
During the investment planning for the purchase of the income-producing real estate, is important to plan how long you want to keep the property when to sell it and under what conditions. The actions you take after purchasing your income-producing real estate will affect your profits, so plan them carefully, maybe trying to hypothesize various scenarios and the actions to be taken for each of the income-generating real estates.

Income-producing real estate – You make money especially when you buy
Many investors in income-producing real estate focus on “what income” the rental fee generates, forgetting a simple but essential rule. Your final earnings will be determined by how much you are good in buying. “Buy low and sell high”. Always follow this rule and you’ll never go wrong.

Income-producing real estate – What costs and taxes imply the property acquisition?
In addition to the income-producing real estate purchase price, don’t forget the parcels for the notary and the real estate agent. And any other professionals, such as architect, and so on. In addition, of course, the various taxes required by law.

Income-generating property – Maintenance costs
The income-producing real estate can have ordinary and extraordinary maintenance costs. Unless it’s a lease “Triple Net” (all the maintenance costs are charged to the tenant). Generally, the ordinary maintenance costs are covered by the tenant. While the extraordinary maintenance costs and insurance coverage on the property are paid by the lessor (ie the owner of the property). Before you buy income-generating real estate verify in the rental agreement who pays what. Contact us for further information.

Income-generating property – What’s about the sunk costs?
When calculating your annual return from income-producing real estate, keep in mind that, in addition to extraordinary maintenance costs, you will have to pay also the property tax (IMU, etc.), service charges and insurance.

Income-generating property – Never fall in love with the property
If you like an income-producing real estate or, actually, you’re in love with it, then you are in a risky situation. Strive to be always objective and leave home your emotions before starting a negotiation. You are considering to invest in income-generating real estate. Not buying the home of your dreams! So remember to stay cool and keep calm.

Income-generating property – The art of negotiating
To buy well, not only income-generating real estate but also commercial real estate and luxury homes, apply 4 simple techniques which are at the base of each negotiation:

NEVER talk first about the price (whoever speaks first about that has lost the negotiation).
Slow down the negotiation (this is a technique which is well known by professional negotiators).
Thanks to the point B. technique, take advantage of the time you gained by slowing down the negotiations and do research to get better informed on market prices for similar properties in the area.
After making your offer, put “pressure” on the seller letting him know that you are ready to leave the negotiation if the deal doesn’t satisfy you (this should not be a bluff, but you must be really ready to give up, so be cool and determined).
Income-generating property – Make debts
The real estate business, especially for income-generating real estate, should be done with the debt. Never investing the equity! If you invest your money, you will nullify the advantages of this type of investment and expose yourself to risks. So, always try to leverage, even if today the access to bank credit is more complicated than some years ago. Needless to say that the financing of income-generating real estate must be “self-liquidating”. In other words, the loan you make on the property must be paid with the rental income. This must still leave room for your own profit after having covered the costs. Indeed, there are insurance and extraordinary maintenance costs, and taxes. Whatever will be named the property tax in Italy, it could even change the name but it will continue to exist. Contact us for details.

Income-generating property – Keep an eye on cash flow
If you make a business worth millions of Euros, but your cash flow is always negative, it doesn’t make sense. Obviously, the income-generating real estate generates cash flow with the rental fee. We know that today the banks and leasing companies are much more conservative in granting credit. Unless you invest in income-producing real estate, which is considered by lenders much less risky than houses built to be sold. And unless you own already have a basic capital. This capital could be created through the sale of other not strictly necessary asset (for example, not income-producing real estate that you could sell. Use this capital for financial leveraging to obtain self-liquidating loans to purchase income-generating real estate that generates cash flow.

Income-generating property – The deal of a lifetime doesn’t exist
The real estate business has always existed and will always exist. So, as already repeated several times, no emotion and stay cool. If something of the deal doesn’t convince you 200% go to the next property. The world is full of luxury homes, commercial properties and income-generating real estate!

These are just a few aspects to checkout. The investment in income-generating real estate involves many other checks which are much more complex. Contact us for a free consultation!

Click here to see our Income-producing Real Estate and Commercial Real Estate for Sale:
Income-Producing Properties

If you don’t find what you are looking for, contact us and we’ll make a targeted search according to your needs.