Over the course of the next several months I will be teaching you the differences between investing in Single Family Homes (SFH) and Apartments (Multi-units) and other commercial properties. As a starting point, I will begin with the terminology used in this area to help you begin your journey towards financial freedom. Within a few short weeks you should begin to see why most wealthy investors have or have had Apartments and other Commercial properties in their portfolios.
Did you know Robert Kiyosaki used apartments to get out of the Rat Race so he could write the book, 'Rich Dad, Poor Dad'? Did you know that one of Donald Trump's first RE deals on his own was flipping an apartment complex in Cincinnati?
These types of properties were designed to generate large amounts of cash flow every month and have allowed many many people to become financially free just by following the principles I'll be teaching you right here each and every week for the next year.
Unlike SFH's, Apartments/Commercial properties are usually valued based on the Income these properties generate. This is known as the Net Operating Income. Because of this, I will start with the Income side of the equation to show you exactly how Apartments are valued. The first term I will share with you is Scheduled Gross Income (SGI). Also, referred to as Gross Scheduled Income (GSI), or Potential Gross Income (PGI) or Gross Potential Income (GPI). Many people will use these same terms and/or acronyms interchangeably.
The bottom line you need to know is that this figure assumes that all of the units in a complex are 100% occupied at Market Rate and every tenant is paying on time. Even though the property may have some vacancies or perhaps some tenants that don’t pay on time, we don't adjust for those vacancies just yet. We need to start by comparing apples to apples and we do that by assuming all the units are full and all the tenants are paying market rent on-time each and every month.
In my next email I'll discuss Vacancy and define the difference between Physical and Economic Vacancy. There can be a big difference between the two and I'll let you know what that difference is in a few days.
Until then, have a great week and thanks for signing up for this valuable information!! Feel free to drop me a line and let me know what you think of the information I'm providing to you. I am constantly striving to improve what I do and can only get better by hearing feedback from you.
Sincerely,
Anthony Chara