Many investors are quick to judge the merits of an office condo investment before considering all of the facts in the case. In a nutshell, don’t be so quick to judge a book (investment property) by it’s cover (monthly rental rate). Below are some simple facts and figures that illustrate how office condos (buy these or these) are actually a better investment (NOI & Cap Rate) than a single family rental home.
First, some facts & figures, then some summary and analysis:
Purchase Price: $270,000
Monthly Rental Income: $1,800/mo (gross lease, owner pays all other expenses)
POA Dues: $45/mo
Property Taxes: $585
P&I: $969/mo (20% down, 30 years, 3.5% Interest)
Cash to Close: $54,000
Net per month: $121/mo vs NOI: 4.84%
Purchase Price: $230,000
Monthly Rental Income: $1,204/mo ($17/sf NNN lease, tenant pays POA, Taxes, Insurance)
- POA Dues: $165/mo
- Property Taxes: $500/mo
- Insurance: $80/mo
P&I: $1,067/mo (20% down, 20 years, 3.5% interest)
Cash to Close: $46,000
Net per month: $137/mo vs. NOI: 6.2%
There are some assumptions in this comparison, things such as mortgage amortization, rate, term, etc. Standard rental rates and purchase prices for properties in the Leander & Cedar Park (Austin, TX suburbs) are used as well. On the surface, the early numbers would seem to indicate a rental home is the better investment, but when you dig in to the numbers, it’s actually the office condo that wins out, using Net Operating Income (NOI) and Capitalization Rate (Cap Rate). Investors may want to use Gross Rents or some other sort of analysis method, but for simplicity and logic’s sake, I’m using NOI & Cap Rate to illustrate the bottom line. In addition to the numbers ultimately favoring the office condo, there are some intangibles (not so small) that factor in, too. Things like, squatter’s rights, animal/pet damage, spilled drinks and markers on walls, carpet replacement, dead yards, incessant repainting, etc. The fact is, office users are quiet and generally clean and low impact on a property (read: much cheaper make-ready), plus they sign longer leases, usually (read: longer and better tenants).
So, if you have some extra money burning a hole in your pocket and you’re considering investing in the real estate market, take a good, hard look at a commercial investment property vs. the old cliché “rental home”. Buy now, sell for more, later!
You’re welcome! 🙂