Make Hay While the Sun Shines

The story goes that an ambitious young man was praying to God daily for months; intensely imploring the higher power to help him win the lottery. After many months of praying, the man received a message from the Lord, “Sir, if you want to win the lottery, you have to buy a ticket.” Investors serious about building wealth and developing a comprehensive strategy to maximize the appreciation and income potential of their Investment Portfolio will be well served to investigate the opportunities available in today’s commercial real estate market. There exists an almost unprecedented opportunity to position your portfolio for exponential capital growth.

Consider the fact that today you can purchase stabilized investments with cap rate returns starting from 7% (and up in most investment categories) and capitalize on the 5.5%-6.75% lending options to finance the investments.

Today’s lending environment offers a comfortable spread for both new purchasing and creating prudent leverage. Multi-Family investments may offer an even better return with interest rates for Apartments/Multi-Family quoted as low as 4.5%.

Remember that the options available in purchasing income property run the gambit from Multi-Family Residential Investments to Industrial Facilities to Shopping Centers, Mini-Storage or Mobile Home Parks. Whether your comfort level is centered on Multi-Family apartments, NNN Leased Opportunities, or more aggressive Value-Added Investments; both the inventory levels and income accelerating opportunities are substantial.

There are other important advantages to consider when investing in Commercial Real Estate; leverage and positioning yourself to take advantage of the “wealth building” capability of the 1031 Exchange Option (eliminate the tax bite of Capital Gains to keep all your hard-earned equity intact). In addition, you receive of the tax benefits of both depreciation and interest tax write-off.

1% to 4% annual returns available in the stock and bond market pale when compared to the multi-dimensional estate building capability of real estate: income, appreciation, leverage, and generous tax advantages.

As one savvy investor once said, “One good investment is worth a lifetime of toil.”

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Stretching Your Retirement Dollar

It’s no secret that prudent investors have discovered the income potential of purchasing property out of their immediate area. Quick, inexpensive airline flights and easy internet access make it convenient to participate in this relative new and lucrative investment opportunity.

One “management free” option for enhancing your retirement income is a Triple Net Leased Investment. A Triple Net Leased Investment (NNN) is typically a commercial property occupied by an established tenant with a long-term lease that obligates that Tenant to pay all the expenses of occupying the property (real estate taxes, insurance, and all the common area maintenance). When you purchase the real estate; you also purchase the lease, and the underlying income stream. A typical tenant for this investment category can be a drug store (Walgreen’s), restaurant (sit down or fast food), a gas station, a bank, an industrial distribution center, or a large grocery store (Safeway).

To explore this investment alternative, consider the following criteria before making your decision. Here are some prudent guidelines:

  1. TENANT CLASS: Who is the tenant behind the lease? Who is the guarantor? If you require ultimate security from your investment; be prepared to sacrifice a little on the return. A good example of this would be buying real estate leased to Walgreen’s. Walgreen’s has stellar credit, offers supreme safety, but the return is usually a little under the rest of the market.For a more aggressive bottom line, you may want to consider real estate occupied by an established franchisee. An established franchisee operates hundreds of locations and will have an impeccable management résumé. More important, the return from a franchisee may be 2% more than the return from the Walgreen’s investment. They can be extremely reliable, but they’re not Walgreen’s. Still, the accelerated income is often worth the trade-off.
  2. LEASE TERM: I’m almost always comfortable with the longest term I can find. A long term lease gives the buyer the comfort that the tenant believes in this location, and the investor has a very saleable product should they decide to trade up or want to liquidate in the years to come.
  3. LEASE BUMPS (Increased lease rate over time): Most long term leases will not have “annual” increases, but there should be a provision for rental increases every 3 to 5 years. This will create another appreciation hedge, besides market forces. (Interesting to note that the majority of Walgreen’s leases have NO provision for rental increases – another trade-off for that security.)
  4. LOCATION: Typically, the better the location, the lower the return. But what’s a good location? This gets interesting when you research geographic areas in the country and examine where growth is occurring. The ability to quickly research information has opened up investment opportunities that just weren’t accessible before the internet, and it has created a dynamic pool of investor opportunities. It’s exciting, lucrative, and worthwhile to become familiar with this investment strategy.
  5. KNOW THE LEASE DOCUMENT: A careful review of the actual lease document is critical to your success. KNOW WHAT YOU’RE BUYING! When an NNN leased investment is purchased, consider it a bond with a real estate component that will give you real estate tax advantages and appreciation (without the management headaches). The lease should be reviewed by a real estate attorney and the real estate broker representing you. Both professionals will examine it from a different vantage point, and it will help you accumulate all the information you need to make an informed, intelligent decision.

As they say:

You’ve worked hard for your money. Now let your money work hard for you. One good investment is worth a lifetime of toil.

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