The real test of an income property’s investment merit would be to complete NetGain’s EVS due diligence examination. That said, there are three core income properties: residential, retail and office. The following is a general overview of how income properties rank as investments in the current economy.

Residential: There will be a fallout of subprime borrowers who never should have bought a home. They will rent. Consumer confidence is low. Low consumer confidence translates into reticence to commit to a mortgage and use funds for a down payment. Unemployment is increasing. Unemployed people don’t buy homes, they rent. New construction of rental units is low. This means the supply/demand equation for residential income investment is favorable. NetGain would rank residential income property as a “buy”.

Office: Unemployment is increasing. Work activity has become more portable. Technology has eliminated many office jobs and reduced space needs. Many company’s balance sheets are weaker. Credit is tighter. New construction has been limited. These conflicting issues mean office space is an attractive income property investment, but you have to be very selective. NetGain would rank office income property as an “it depends”.

Retail: Consider the following: The high cost of driving to and from retail stores; the frustration of parking; the increasing number of two income working families not having time to shop; the alternative life activities that many consumers would rather spend their limited time doing. All of these factors plus the increasing growth of e-commerce leave the large piles of inflexible retail concrete with an outdated business model.

NetGain has stated numerous times that the more rapid growth of e-commerce sales will not stop. E-commerce sales have grown from zero percent ten years ago to 3.5% today, and are still in the formative stage. The future for retail income properties is a “no buy”.

Two other income property types worth mentioning are:

Industrial: There are two attractive investment features: (1) Industrial space is very flexible and efficient for accommodating lessees and changing lessee profiles. (2) The lower cost (compared to office and retail) of construction allows for very competitive rents. Industrial income property is a “buy”.

Storage Space: The increased portability of our society has created a need for additional consumer and business space. Lessee flexibility, comparative low maintenance and low capital requirements are strong pluses for investing in storage income property. Storage income property is a “buy”.

The chart below is an income property type investment overview of NetGain’s position as of April 2008.