There are investments and there are sort of investments...

Can you help me find an investment property? Digging into the details, asking questions and having a good chuckle …

Just the other day my colleague Nahz got an email from a prospect of ours who is looking for an “investment property”. We love those kinds of inquiries. This prospect is a sophisticated and smart individual who lives in our small college town of Davis, California. His profession is in the financial service area and he has a diversified portfolio and has acquired property through our brokerage firm before. We were pleased to have the opportunity to try to be of assistance and potentially make a commission.

So that lead Nahz and I to have a discussion, get busy scanning the market, making a few calls, getting the help from our research and marketing colleagues and having a few laughs about; “What is an investment property?” We are investment brokers and realize that when people seek an investment they are seeking a return on their capital. Also investors want to make sure that they get a return of their capital. We have been trained in calculating yield and returns and we know how to discuss cash flows and the reversion value or the future gain from a sale or disposition. We can build spreadsheets and do discounting and compounding and build 10 year projections to evaluate an investment with our clients. Our discussion turned quickly to what kind of investment. There are the four core investment property types; Retail, Industrial, Office, and Multi-family. Or would the client be interested in a non- core investment like ground lease, hospitality, special use, etc ?

Was this client looking for safe and secure income, institutional quality property and the resulting lower yield and higher price that goes with it? Was he interested in a value added deal? Do you think he wants a mom and pop kind of property with the management responsibility that goes with it? Single tenant or multi-tenant? How much leverage and how much cash? Was his investment being driven by tax shelter /tax deferral like a 1031 exchange requirement?
So we ran through our mental check lists and thought about all commercial properties that we knew were on the market, including our listings. Then we did a search of the commercial databases Loopnet, CoStar, the local MLS and we developed a list and a summary including a picture and a map of each property “listed as an investment property” in these databases.
Now here is where we think it gets funny. As we analyzed the 18 properties and summarized the data into categories we realized that- what is often listed as “an investment property” could in many instances be labeled and described as something quite different as well. In our letter of transmittal to our prospect we said.

Dear Client
Please find attached materials summarizing what is on the market. Two properties are commercial buildings with Net Operating Income. One is a multi-tenant office building at a 7.15% asking cap rate. One is a single tenant specialty/convenience store at a 5% asking cap rate. (Also that retail strip that we previously mentioned that had been on the market at a 6% cap, is not actually on the market anymore. “It has been removed from the market because of disputes amongst the partners and some tenant issues”… but if you want to make an offer we’d love to present it, their broker said.)
There are 3 Multi-family properties on the market, one is a four-plex at nearly $200,000 per door, another is a 13 unit apartment at about $135,000 per unit but no income or expense information is available and please don’t disturb the tenants. The third apartment complex is a nearly 40 year old 200 unit complex at $115,000 per door and a 5.5% cap rate.
Also there are 6 properties on the market – that are land deals—for development – in the People’s Republic of Davis. Those will give you an opportunity to spend money and a lot of time at hearings and meetings. There were two business properties seeking owner users. There were two Farm and Ranch Acreages. And finally there were two properties that we decided to label “Unique Davis Deals”. A campus like setting with living units, a school, an administrative office, a gym, a kitchen, and no income, and no asking price…make offer. And finally there is a remodeled 1917 bungalow with a conditional use permit for a wellness center that has a wheelchair ramp in a residential area but near the commercial center…
Please let us know if any of these are what you had in mind when you said you are looking for an investment property? Please call with questions or concerns.
Best Regards,
Jim and Nahz

Now don’t get us wrong every one of these properties has its positive attributes and we hope to be able to sell or lease each and every one of them and to serve the client in meeting their objective. However, I am not sure we would describe many of them as “investment properties”. In closing when describing considering and reviewing an “investment property” remember that there are some investments that have steady and predictable income and returns and there are other real estate opportunities that have attributes for use, development, and speculation. And every investment has potential for risk and rewards and occasionally a chance for some chuckles.

If you would like to discuss this Blog Post with us or if we can answer questions or try to help you search for an investment property or a good chuckle or if we can be of service please contact us. Jim Gray (916) 617-4255 jgray@naibt.com or Nahz Anvary (916) 617-4257 nanvary@naibt.com