by Mark Middleton, RE/Max Unlimited, Bainbridge Island
“The Lockbox Dilemma”
My Realtor wants to put a lockbox on my house so while we are at work, other Realtors can come in and show my place. I’m a little nervous because I am concerned who exactly can access this lockbox, which contains my house key. Is there anyone else besides a Realtor who can access this box, and how would I know who accessed my box if something went missing?
Lockbox Uneasy on Bainbridge
. . .
Great question! The only people who can access your lockbox are Realtors and appraisers, both of whom can only access it if they are members of GE Supra, the company who licenses the lockboxes and electronic keys used to open lockboxes on Bainbridge Island. Records of all licensed Realtors and appraisers who access your lockbox are kept by GE Supra, and your listing broker is immediately notified when anyone accesses the lockbox. The time and date of access is permanently stored on file. It really is a terrific system that is safe, secure, and time tested. You can rest easy that your home will be well protected, and anyone who accesses your lockbox will be a licensed professional. That’s something you can’t say about someone who makes you a copy of your house key at a big box store.
Thanks for your question,
“Looking for Better Returns Than a CD”
I have a chunk of cash sitting on the sidelines. CD rates are pathetic, and stocks and bonds still make me very nervous these days. My financial advisor suggested I look at buying a commercial real estate property, either a small office building or apartment. I have no idea how you can tell if a small office building for sale is a good value. Can you help me understand what I can expect in terms of price?
Looking for Better Returns
. . .
Because I am certified to sell both residential and commercial real estate, I love questions about income-producing properties, so thank you!
A real estate income-producing investment can be a real winner; however, there are many factors to consider before you buy one. Experience has shown my clients that careful planning and due diligence are the keys. The first thing to consider is the strength of the tenant, or tenants, who will be leasing the property from you as owner. How many years are left on the lease? Has the tenant(s) paid rent on time and in full each month over the term of the tenancy? Are there options to extend/renew the lease? The last thing you want to happen to you as a new building owner is to purchase a building only to see your tenant move out in a year or two! As a landlord, you want a stable and reliable tenant, as well as a very good landlord-tenant relationship.
The second thing to examine is the purchase price and what your return on investment in the property will produce over time. The most basic and most common way of looking at this is by using what is called the “Capitalization Rate,” or CAP Rate. This is defined as “the measuring of the ratio of net operating income to the price of a property, which serves as a rough approximation of expectations regarding return on a property investment.” If you are scratching your head, let me explain by using a simple equation:
You take your net operating income—your rent minus expenses—divided by the purchase price of the property. Your answer equals the CAP rate.
In today’s market, CAP rates are hovering between 6.5 percent and 8 percent. The higher the CAP rate, the higher the expected rate of return is a general rule of thumb. However, a higher CAP rate also can sometimes mean more risk. Thorough research, careful planning, and patience are keys to success when considering purchasing a real estate income-producing investment.
The third thing to look at is the tax advantage in this type of investment and, in particular, the great advantages of depreciation. If you are making this kind of investment, it is worth talking to your tax advisor about your purchase.
Finally, don’t be put off by real estate jargon, because your real estate sales professional should be able to walk you through the terms and why they are important to you. So when you hear things like “Triple Net” or “Net/Net/Net” or “NNN” (they all mean the same thing), you’ll learn that this is the best form of lease to use as a landlord, as your tenant(s) pays for all of the expenses to operate the property (except debt service, which a portion of the base rent income pays for). Anything above and beyond the expenses and debt service is profit for the landlord.
Many fortunes have been made by savvy real estate income-producing investors, but there is always risk with any investment. So do your homework and hire a local professional who has a track record in buying and selling commercial real estate.
Thanks for your question,
My fiancée and I are talking about buying our first home after we marry, but we are trying to figure out what makes more sense: renting or buying. We both have good jobs and don’t expect to move for at least five years, but we keep hearing that renting is now a better option than buying because so many homeowners have watched their home equity get wiped out the last few years. What do you think is better for us, buying or renting?
Sitting on the Sidelines
. . .
Your question could not be timelier, as a lot of folks are finding themselves asking the same question. In your situation, I would advise a purchase for you and your soon-to-be-spouse at this time rather than renting. You both have stable employment and have decided you will be not be moving for at least five years. Interest rates are phenomenally low right now, and property values are either close to or at the bottom of the market decline since the peak of the bubble in 2007. In our area we are currently seeing values at November 2004 levels. You have to ask yourself this question: When has there ever been a time when housing prices have been low and interest rates have been at record lows? Typically, these two things run in opposite directions, so right now we have a perfect storm for new home buyers.
The experts say the Seattle area is expected to hold its own over the next two years, and we know historically that over five years you should see your home become worth more than what you paid for it. One thing is for certain: If all you pay is rent for the next five years, you are certainly going to lose money. There are some incredible deals and opportunities on Bainbridge Island right now, and I believe it is an excellent time to buy, especially if you plan to stay put for a while.
Thanks for your question,
Mark Middleton is a top producing RE/MAX agent on Bainbridge Island, specializing in all aspects of residential and commercial real estate sales. He invites your real estate questions either by email to email@example.com or by regular mail in care of Inside Bainbridge at 321 High School Road, Ste. D3 #209, Bainbridge Island, WA 98110.