Consequently, fixing this economy means not only making credit available and reconciling the toxic loans, it means increasing the employment base by a least 7.5 million persons. That type of increase only happens through a socioeconomic change, and that has happened only four times since 1776.

NetGain has continually analyzed, stated and cautioned that ours is a cyclical economy, and that recessions are a fact of life, and should be a part of every income property investor’s strategy.

...Read the rest of America’s Current Economic Downturn and the Solution

The United States continues its predictable and inevitable slide into a recession. For more information on market cycles, please reference NetGain’s essay “Market Cycles and Income-Producing Real Estate.”

Highlights of the current U.S. economy:

• The unemployment rate for October increased to 6.5% from the prior 6.1% rate for September
• The Consumer Confidence Index for October is 38 (1985=100), a record low
• The Commerce Department reported that the gross domestic product (GDP) fell at an annual rate of 0.3 percent in the July-September period, a significant slowdown after growth of 2.8 percent in the prior quarter

Current capitalization rate recommendation: Income property buyers should consider capitalization rates of 7% minimum. Included in determining the capitalization rate should be an attentive lease rollover analysis. The probabilities are that releasing lessees will be executed at lower rates.

Consequently, all income from leases that expire within one year has to be re-evaluated when determining the net operating income to compute a capitalization rate. The collected income from those leases has to be adjusted to what the probable income would be. Remember, the lease that offers the option to renew at a previously negotiated rate is a unilateral agreement (at the discretion of the lessee). If market rates are higher, the lessee will execute. If market rates are lower (as is the case in most instances), the lessee will not execute the option, but will re-negotiate to get the lower market rate.

Where does the economy go from here? For informed analysis and answers, please reference NetGain’s essay “America’s Current Economic Downturn and the Solution.”

Opportunity comes in many forms. Sometimes it’s the result of competent leadership. Sometimes it’s the result of leadership being beaten over the head so many times that they finally succumb and accept the inevitable. That appears to be the case for America’s next socioeconomic change. It was the theme NetGain chose for October: The next socioeconomic change and its impact on income property values.

Considering the enormity of publicity and the dire predictions promulgated by Secretary of the Treasury Paulson and Federal Reserve Chairman Bernanke, NetGain decided to put what it believes is the next socioeconomic change on hold until next month and examine our economy this month.

Why does NetGain care about the economy when its overarching interest is to provide information that minimizes the risk and increases the value of income property? Because whatever direction the economy takes, so goes the job market. And NetGain believes that “jobs” are the single most important driving force behind determining the value of income property.

Now, let’s back up, and get a better understanding of where we are as a country economically.

Where we are has been rehashed by the media and the politicians over and over. Simply stated and without pointing a finger at anyone, greed, leverage and poor oversight (what’s new?) has created the biggest threat to the American financial system since the great depression.

...Read the rest of The Great Credit Demise - What is Going On?

What is a business model? The phrase describes all of the critical aspects of a for-profit undertaking. It would include the enterprise’s purpose, philosophy, products and/or services, strategies, infrastructure, organizational structure, sales practices, and operational procedures.

There are many factors that decide the make-up of a business model. However, there is one factor that dominates all the others: Customer/client and the relationship between the customer/client and the enterprise.

...Read the rest of Is the Income Property Business Model Outdated?

While exact definitions of Web 2.0 vary, one component crosses all: interaction. The individual visiting a website is no longer a passive receptacle of information, but instead becomes a contributor, editor, conversation partner, organizer, and colleague. How does this happen? Following is a review of common tools that open the doors for sharing and interactivity. All of these tools can be found and utilized on this website.

...Read the rest of Jumpstart Real Estate Investment with Web 2.0 Tools

The scenario: An income producing property grosses $60,000 per year, and half is derived from a retail sales store, the other half from an upstairs nightly rental. The retail store is under a lease and the two properties cannot be sold separately. The sales shop tenant pays the utilities; the nightly rental does not.

The solution: On a conceptual approach, the properties have to be viewed as a single entity operating two businesses. As a result, three profit-and-loss (P&L) statements would be required: One for each business and a consolidated statement. The consolidated P&L is for establishing the value of the property, and the individual P&Ls are for operating the property.

To establish net operating income (NOI), all operating expenses must be deducted. As bills are paid, every item that can be classified as an operating expense gets deducted from the income collected.

As far as allocation of operating expenses, the lease with the retail sales store should define which items they pay. If the property owner feels the store should be paying more of the operating expenses, that is a matter for renegotiation of the lease, and the result would depend on the leverage available.

Whatever items the retail sales store is not obligated to pay, the marketplace will determine how much of the remaining operating expenses can be reallocated to the nightly residents. There are no set rules other than what the marketplace will bear.

The following narrative is a description of the four core pillars that support the quality of life and their current state in America. Why does NetGain have this interest? Because so-goes America, so-goes income property values. And NetGain’s single-minded purpose is to provide value-added information that has a positive affect on everyone involved in the income property investment process. As NetGain sees it, there are four core components that form the foundation of a democratic country utilizing capitalism as its economic engine: (1) Security for the safety of its citizens, (2) the economy, (3) the quality of and availability of its educational system, and (4) the quality and coverage of its healthcare system.

When these four core components are positive and march in lockstep, a country is strong, productive, and opportunistic. Without these four components, other issues begin to fade away. This is not to diminish the importance of all the other issues that affect a country, but the four core components will determine a country’s continuing existence and its quality of life. Everything else determines the manner with which the country conducts itself.

...Read the rest of Income Property and American Policy

NetGain provides national cap rate recommendations via its Nation Income Property Index (NIPI). There are times when local markets exhibit numbers that exceed the recommended rate. The foundations for NIPI are predicated on avoiding negative spread, the economic outlook (using the Consumer Confidence Index), and the current unemployment rate. Those components are factored into a weighted and proprietary formula and the result is a recommended capitalization rate. It is important to note that NIPI is based on national numbers and the recommended cap rate should be used as a guideline.

...Read the rest of How do you square local cap rates with national recommendations?

The scenario: A small group of partners has been assembled to buy and operate a retail strip mall. The lead investor is looking for a property that will generate 20% cash-on-cash earnings and does not want to go below 18%, but sellers’ prices seem unrealistic compared to the real NOI.

The reality: The two main characteristics for buying income property at an attractive price are (1) negotiating skill and (2) the seller’s motivation. To get a 20% cash-on-cash return you would need one more characteristic: A mentally unhinged seller.

...Read the rest of Where does one find commercial property with a 20 percent return?

The most efficient approach for getting the names and information of income property owners is to identify where there are lists available. NetGain offers two suggestions.

(1) There are list companies that will search and design lists of names and addresses for you. NetGain doesn’t endorse vendors, but if you google “mail list companies” and “international mail list companies” you will have a good selection to choose from. The key pieces of information to obtain are how long in business, the size of the company, and any references.

(2) For multihousing information, practically every state has an apartment association. The membership of these associations is made up of apartment owners. As a case study, following are the three leading apartment associations in New Jersey.

...Read the rest of How does one find owner information for income property?