3.3.2. Existing (Operating) Properties
Real estate programs that deal with properties already in existence have many of the advantages and risks of new construction programs. However, they have the additional advantage of generating immediate rental income. Their physical condition is also subject to inspection. That and their operational history make appraisals of the property more accurate. Expenses, too, have an operational history and can be assessed more reliably. Finally, tenant occupancy rates can be easily assessed from the historic record.
A further advantage of existing properties is that in a tight credit market they may have the option of borrowing from the seller. Seller financing allows a buyer to circumvent conventional financing and achieve lower financing costs and less stringent loan appraisals.
On the risk side, DPPs that specialize in existing properties can expect to pay higher m