There are some basic ways to calculate a fair price for a net lease. Keep in mind, these are historic averages...given the tough economy, lack of construction/growth and other financial situations it is entirely possible to negotiate much better terms!
Most net leases use a capitalization rate in order to determine a desired rate of return. For example, let's assume the net rent on a given property was $30,000 per year for 20 years. To reach a capitalization rate of 10%, the selling price would be $300,000. Keep in mind, because the capitalization rate and price should reflect the prevalent market/interest rates, it is possible to negotiate a significantly reduced rate in the right situation.
Remember, the capitalization rate indicates the desired rate of return of the investment and typically consists of a combination based upon the prime rate...currently near zero!
The ability to secure the rights to a strategically placed property while enjoying significant tax benefits should not be underestimated especially during these tough times. Not only does it benefit the buyer but also the seller; the land continues to appreciate but since it is leased, is a valid deduction for the lessee. Sellers may be concerned about bankruptcy or liability concerns so it is important to stipulate the proper forms of insurance to protect ones interest.
Should a default take place, most landowners find it relatively simple to re-lease the property while enjoying the continued benefit of above average returns, reduced maintenance and liability issues and a long term ownership of the property including the ability to provide for family member or heirs.
Net leasing can include individual parcels, commercial property and nearly any type of land related asset.See you at the top because we will help get you there.
Most net leases use a capitalization rate in order to determine a desired rate of return. For example, let's assume the net rent on a given property was $30,000 per year for 20 years. To reach a capitalization rate of 10%, the selling price would be $300,000. Keep in mind, because the capitalization rate and price should reflect the prevalent market/interest rates, it is possible to negotiate a significantly reduced rate in the right situation.
Remember, the capitalization rate indicates the desired rate of return of the investment and typically consists of a combination based upon the prime rate...currently near zero!
The ability to secure the rights to a strategically placed property while enjoying significant tax benefits should not be underestimated especially during these tough times. Not only does it benefit the buyer but also the seller; the land continues to appreciate but since it is leased, is a valid deduction for the lessee. Sellers may be concerned about bankruptcy or liability concerns so it is important to stipulate the proper forms of insurance to protect ones interest.
Should a default take place, most landowners find it relatively simple to re-lease the property while enjoying the continued benefit of above average returns, reduced maintenance and liability issues and a long term ownership of the property including the ability to provide for family member or heirs.
Net leasing can include individual parcels, commercial property and nearly any type of land related asset.See you at the top because we will help get you there.
No comments:
Post a Comment
Thank you for taking the time to add a comment. Not all comments are posted and shared. Please feel free to email me directly at: GoodNewsCarsonCity@gmail.com.