Tip of the Month - May, 2006

Risk: There is always some risk attached to a real estate venture. The older the property, the greater the risk. The more deferred maintenance & upkeep, the greater the risk. Even Tenant mix & lease terms might increase the risk. With an income-producing property, the quantity, quality, & durability of the income stream is extremely important. Therefore, it is essential that these elements be considered prior to the commencement of ownership. If these three factors are favorable, then there is less risk. If the leases are below the indicated market, or the terms are shorter than the terms in the market, then this might add additional risk to the venture. The inverse of this is that the newer the property & the more favorable the lease terms, the less risk.