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Clear Coat Construction - INVESTMENT PROPERTIES
Some individuals and companies are engaged in the business of purchasing properties at foreclosure sales. According to the legal foreclosure stages when the process is completed, the lender may sell the property and keep the proceeds to satisfy its mortgage and any legal costs. The foreclosing bank has the right to continue to honor the client’s lease, but customary as a rule the bank wants the property vacant, in order to sell it more easily.[1] Thus distressed assets (such as foreclosed property or equipment) are considered by some to be worthwhile investments because the bank or mortgage company is not motivated to sell the property for more than is pledged against it.
Net operating income, or NOI, is the sum of all positive cash flows from rents and other sources of ordinary income generated by a property, minus the sum of ongoing expenses, such as maintenance, utilities, fees, taxes, and other items of that nature (debt service is not factored into the NOI). The ratio of NOI to the asset purchase price, expressed as a percentage, is called the capitalization rate, or CAP rate, and is a common measure of the performance of an investment property.
Equity build-up is the increase in the investor's equity ratio as the portion of debt service payments devoted to principal accrue over time. Equity build-up counts as a positive cash flow from the asset where the debt service payment is made out of income from the property, rather than from independent income sources.