“It is always the right time to invest in income property if you pay the right price for the right real estate, and know how to execute the role of an asset manager.”

Terrorism, taxes, jobs, health, education, racism, a confrontational environment, and on and on. Have we ever lived at a time when we said it’s a perfect world and a perfect time to invest? The preeminent question that pervades the real estate industry today is the following: “Is now the time to invest in income property?” Some people lean forward and quietly whisper “Is now the time to buy?” Others shout out in the middle of a conference “Is now the time to purchase real estate?” You get the feeling that once the word is given, everyone will run to the nearest real estate they can find, make an offer, buy the real estate, and then watch their purchase increase in value. That’s called herd activity. Herd activity requires two ingredients: A self-anointed prophet and a group of gullible, inexperienced people with money to spend.

These self-anointed prophets are very generous people. It is there destiny and desire to show you how to become rich. And for a bargain price that is guaranteed to work, they will share their secrets with you. Unfortunately, what they don’t tell you is that there are no guarantees, only probabilities. Three key words are necessary to increase the probabilities in your favor: (1) knowledge, (2) time, and (3) focus. Those real estate investors who don’t have those three characteristics are discovering that not everyone makes money; you can lose money.

Is now the time to invest in income property? The essential elements to answer that question are as follows: An understanding of the nature of commercial real estate, how to gauge value, and the skill to perform competent due diligence. Understanding the nature of commercial real estate is a precondition to the timing question. What is commercial real estate? It’s a business. The product is space. The core income properties provide space for living, working and shopping. The clients are the lessees. Value is determined by a combination of the yields of today’s bottom line and the prospects of tomorrow’s bottom line.

The product of core income properties is a societal necessity. Given that understanding, the answer to our title question is that it is always the right time to invest in income property if you pay the right price for the right real estate, and know how to execute the role of asset manager.

Once it’s determined timing is not a primary consideration when investing in income property, the next question should be “Is now the time for you to invest?” Does the buyer have the experience to supervise the purchase and asset management (or understand the role of an asset manager) of the real estate? If the answer to that question is yes, those simple statements launch a whole set of complicated assumptions regarding ability and qualifications.

How do you know if the price is right? Because that’s what the seller wants? Obviously not. Because the broker said so? Of course not. The price will be closer to being correct when you have (supported by outside expertise where necessary):

1. Completed an intensive study of the area (macro and micro).
2. Analyzed the income and expenses.
3. Evaluated the physical structure.
4. Determined if the amenities support the lessee profile.
5. Identified all potential liabilities.
6. Decided on an offer based on values in place (not projections) that achieve an above average ROI.

There is one final step prior to purchase that will help to determine if an above average ROI is achievable. Successful businesses are supported by three mutually agreed to, executable plans (by all interested parties), and income property is no exception. Those plans are: (1) the business plan, (2) the marketing plan, and (3) the budget. These three plans provide the basis to tell what you plan to do with the business, how you will attract clients, and what the financial requirements are. Drafting these three plans gives you the insight to determine the reality and probability of achieving an above average ROI. Anything less than these efforts leaves you hoping and praying for a profit versus being in control of your destiny and creating a profit.

Acquiring and owning property is the basis of capitalism. That right does not give wealth; it provides the opportunity to acquire it. Buying real estate and watching it automatically increase in value belongs to the herd mentality. Mistakes will cause loss of capital. Today’s successful real estate buyers need the knowledge, ability to work hard, focus, and patience to deal with reality of our cyclical economy. Given those characteristics, “It is always the right time to invest in income property if you pay the right price for the right real estate, and know how to execute the role of asset manager.”