0

Triple Net Leases: How to Create Fewer Headaches And More Income

Posted by Emily Cressey
at July 1, 2009

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

The name of the game in commercial real estate is all about lowering expenses and increasing income, and triple net leases let you do both. These leases, and others like them, are usually found in multi-tenant industrial or residential properties. They offer the investor the ability to pass some of the peripheral expenses of commercial real estate ownership onto the tenants.

The reason triple net leases are so important in the world of commercial real estate all comes down to valuation. Residential real estate is valued based on the building’s characteristics like number or rooms, square feet and so on. These characteristics are compared to other sales in the area that have comparable specs and a price is derived. However, in commercial real estate instead of relying on “comps” value for the property is figured by the income it produces. Thus, in order to increase the value of your commercial real estate you need to find a way to increase net income. Net income is figured by subtracting expenses from revenues, in the form of rents and fees. So if you can find a way to increase your revenues or decrease your costs your building will be worth more on the open market.

This is where triple net leases come into play. A net lease mandates that the tenant pay their rent and other fees in addition. If there is more than one tenant in the building then the costs are usually prorated according to the size of their section of the building. In a single net lease the tenant pays rent plus real estate taxes. A double net lease mandates that rents, taxes and insurance are all paid for by the tenant. Finally, and most advantageous for our purposes, triple net leases have the tenant pay the rent, taxes, insurance and all maintenance fees.

By passing off the costs of taxes, insurance and maintenance you effectively lower your costs. The tenant is offered lower fixed rents, and will particularly like this arrangement if the building is newer or has been updated recently. Having a building already up to par is key on selling your tenants on this arrangement as it will help minimize their maintenance costs and allow them to more easily predict their monthly outflows.

Many investors steer clear of commercial real estate because of the horror stories they have heard about tenants, expenses and a host of other issues that have plagued other investors. Yet, just like anything else in the world if you cover your bases with the proper legal agreements, buy at a good price and know the market you will be fine.

Technorati Tags: , , , ,

If you enjoyed this post, make sure you subscribe to my RSS feed!

Blog Traffic Exchange Related Posts Blog Traffic Exchange Related Websites
Real Estate Investing
0

Property Spotlight: Investing in Self-Storage, Storage Units, Or Storage Space

Posted by The Real Wealth Company
at June 23, 2009
Is this storage unit big enough?

Is this storage unit big enough?

Thinking about investing in storage units?…I mean storage space….what I meant to say was self-storage?

Greetings from the metropolis of Cedar Crest, NM!

Actually….from Corley’s Automotive…where my car is in the shop…again.

Anyway…

This is the second post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether they fit your portfolio.

What are storage spaces?
Storage spaces are properties that lease units designed to store personal property but are not designated as living spaces. 51%2BI79Ru5CL. SL160 Property Spotlight: Investing in Self Storage, Storage Units, or Storage SpaceStorage spaces may offer a variety of unit sizes, with some large enough to hold automobiles. Many storage spaces offer an on-site manager that processes paperwork during office hours and lives on-site to provide security. Many managers receive their living arrangements in addition to a nominal salary in exchange for their services.

What Do I Need to Know About Investing In Storage Space Properties?
Storage spaces can be a very efficient way to build your wealth, but you need to do your research to find the right opportunity for you.

1. One of the easiest ways to invest in a storage space is to invest in a Self Storage Real Estate Investment Trust “REIT”. According to investorwords.com, a REIT is a corporation or trust that uses pooled capital of many investors to purchase and manage income properties. REITs require no minimum investment, and pay yields in the form of dividends, which are not based on share performance. Investing in a REIT will yield regular income without the hassle of active management.

2. A significant number of storage space tenants are clients. This means that you secure long-term, low-risk tenants. The bottom line is that you receive steady income with low risk.

3. Economic data has shown that this sector has not been hit as hard as others by the recession.

4. Barriers to entry are significantly lower because construction costs are less than that of other types of property.

5. Maintenance costs are low. Storage spaces are generally constructed from steel or other high-grade industrial materials that are designed to last longer than standard residential materials.

6. Eviction costs generally do not exist. Most states require that unit contents be auctioned.

7. Taxes and insurance costs are typically lower than other types of properties.

What Are the Cons To Owning Storage Space Properties?
Storage space properties can be quick income generators; there are drawbacks to owning this type of property. The market you want to invest in may be too well penetrated. This means the supply of storage spaces may outweigh the demand. Additionally, your region may not have the demographics to support the need for storage spaces. Do many of the residences in your market offer full basements that could feasibly store large amounts of personal property? Is your area full of late teens that may not have acquired enough property to fill an apartment, let alone a storage space?

In Conclusion
Storage space properties are a common addition to many investment portfolios. If you are considering investing in a storage space property, take the time to tour other properties in the market and look at each building’s performance. And, as always, if you have questions, contact the experts at The Real Wealth Company.

Until next time…..rob

Technorati Tags: , , , , , , , , , ,

If you enjoyed this post, make sure you subscribe to my RSS feed!

Blog Traffic Exchange Related Posts Blog Traffic Exchange Related Websites
Commercial Real Estate News and Articles, Real Estate Investing, Self Storage, commercial real estate investing for beginners, storage space, storage units
0

Seizing Unique Opportunities—Do the Risks Outweigh the Value?

Posted by Rob Powell
at June 20, 2009
Hey...check me out! I am stylin' and I am going for it!

Hey...check me out! I am stylin' and I am going for it!

Greetings from the metropolis of Cedar Crest, NM!

Today I celebrated my 39th birthday…on my journey to 40…..yikes!  I remember trying to burn my parents house with a magnifying glass at the ripe age of ten….now…wondering if my ten year old is trying to do the same.

I was talking to my childhood friend, Efrem, this morning and he told me he was getting ready to attend his twenty year reunion.  The word “twenty” rang in my ears long and hard.  What happened to the ten year reunion?  I feel like I just graduated from college….grad school….did I just sleep through it all?  Possibly….but more importantly, A quick reminder that “the time you have is all the time you got.”

Anyway….

Today’s topic is taking the plunge into doing your own thing.  Specifically, investing in real estate. I remember not to long ago taking a leap of faith and trying to do my own thing vs. “working for the man.”  It was a scary time.  Leaving behind the security of a job and seeing if I could make a go at real estate investing.  There were a lot of scary times where I felt failure was eminent….but somehow….it has all worked out so far.  That was eight years ago.  First investments were residential homes…then small commercial deal…then it grew from there.

The one thing I learned is that starting your own business is like having kids. It is never the right time, it is never going to be the right time, so the time is NOW.

So….what is your next step?

There’s an old saying that you can’t win if you don’t play the game. And, it’s true for real estate. If you don’t take the plunge, you41WYGVnszfL. SL160 Seizing Unique Opportunities—Do the Risks Outweigh the Value? can’t collect the money. But, at what point do you decide the risk is worth it?

Understanding What’s A Good Fit
Being proactive is generally a safer risk strategy. This means that if you take the time for self-assessment and research, you will better understand your risk mitigation comfort level. If you are a first time investor, you don’t want to sink your capital into something that requires sleepless nights, tenant hassles and more money than what you are bringing in from the investment. On the other hand, if you are a seasoned investor, you have a good idea what types of property will work for your investment personality and will automatically steer yourself away from risk that is beyond your tolerance.

Looking With a New Perspective
Once you know what your risk tolerance is, do not limit yourself to a certain investing mindset that fits properties into your portfolio. You may “know” you want to invest in an office building that is an “A” level property with a certain dollar amount. However, you may realize even greater earning potential by looking at unique opportunities. Choose to focus on the risk level of a property and determine if that will fit your portfolio.

Risk Mitigation—Bringing Balance To Generate Cash
According to businessdictionary.com, risk mitigation is the systematic reduction in the extent of exposure to a risk and/or the 51V5aOmiNFL. SL160 Seizing Unique Opportunities—Do the Risks Outweigh the Value?likelihood of that risk occurring. By looking at investments through a risk mitigation perspective, you can begin to analyze your investments as big risk/high potential rate of return, big risk/low rate of return, medium risk/medium return, low risk/high rate of return and low risk/low rate of return.

Smart beginning investors will grow their portfolios with both high potential rate of returns and low risk properties. This allows smaller and more steady cash flow from less risky investments to cover gaps from more risky investments.

Making It Work
Investing in commercial real estate should focus on generating cash flow, not generating unbearable risk. But, how do you make this work?

Let’s look at an example:
A property in your desired market area that you have classified as high risk/high potential carries a high investment cost. However, extending your desired market area by 50 miles opens the opportunity to invest in a low risk/high potential with a substantially lower investment cost and brings tax incentives because it is considered a lesser-desired area. If you first invest in the low risk/high potential, you can build the wealth from the investment to then also invest in the more risky and costly investment while covering any gaps that may result from the risky investment.

But What If I Really Like Risk?
As with any investment strategy, there is no one right answer for every investor. If you want to take the plunge and throw it all 41hEepE hCL. SL160 Seizing Unique Opportunities—Do the Risks Outweigh the Value?into a risky investment, you may have a substantial payout. You may also lose everything. Decide what you can handle and then grow your wealth!

Well…until next time…..rob

Technorati Tags: , , , , ,

If you enjoyed this post, make sure you subscribe to my RSS feed!

Blog Traffic Exchange Related Posts Blog Traffic Exchange Related Websites
Commercial Real Estate News and Articles, Common Real Estate Investing Mistakes, How to Invest in Commercial Real Estate, Real Estate Investing, commercial real estate investing for beginners, commercial real estate training
0

Property Spotlight: Multifamily And Pinon Nuts

Posted by Rob Powell
at June 18, 2009
THIS PICTURE HAS NOTHING TO DO WITH THE BLOG...BUT I THOUGHT IT WAS COOL

Apartment Buildings? Pinon Nuts? Dude...who cares?

Greetings from the pinon nut capital of the world…Cedar Crest, NM.  Not really the pinon nut capital for the world…but…I wonder if there is such a thing.

During the first phase of my home remodel, the construction workers would collect pinon nuts during their lunch break. Funny to watch a handful of guys crawling around the ground picking up nuts.  I never even paid attention before.  Now…when I am walking around outside talking on the phone, I will take a seat…and start cracking shells and eating nuts….they are everywhere.

APARTMENT BUILDINGS

Anyway….Let’s talk apartment buildings (Mutifamily a.k.a. Residential Commercial Real Estate). I remember my very first 51 PKoEdH5L. SL160 Property Spotlight: Multifamily and Pinon Nutsmultifamily asset was a triplex in Albuquerque, NM.  I still have it! Like any commercial property or even residential, with the right property management and the right asset management in place, owning multifamily is a wonderful thing.  Without the right management, it can be…and probably will be a NIGHTMARE!

This is the first post in a series that will highlight the different types of properties available to investors. The posts are an overview of general information. As with all investments, you should properly research the opportunities to determine whether they fit your portfolio.

What is “multifamily”?
Simply put, a multifamily building is one meant to house more than one family in individual units. This can include a wide variety of configurations from individual rooms with communal facilities to multiple large apartment complex buildings housing hundreds of people.

What Do I Need to Know About Investing In Multifamily Properties?
Multifamily properties can be a very efficient way to build your wealth, but you need to do your research to find the right opportunity for you. Here are some basics to consider when determining whether to invest in a multifamily property:

• Are you going to manage the property yourself, hire a property manager or hire a management company?

• What occupancy rate will you need to secure and maintain your financing?

• What plan will you implement to prevent low occupancy rates?

• If it is an existing building, when do the existing leases expire?

• What changes will you need to make when implementing your leases once the existing leases expire?

• How much notice must you give according to your state laws about changes to lease terms?

• How do the units compare to other units in the market place? (i.e. will you need to make substantial repairs or upgrades?)

41KBBN2G8GL. SL160 Property Spotlight: Multifamily and Pinon Nuts• How do you plan to retain existing tenants?

• How do you plan to attract new tenants?

• What expenses can you pass on to tenants to generate greater cash flow?

• What upgrades can you implement on a cost effective basis to attract higher caliber tenants and generate greater cash flow?

What Are the Cons To Owning Multifamily Properties?
While multifamily properties can be quick income generators, there are drawbacks to owning this type of property. With multiple tenants, you need an efficient way to track payments, late fees, application fees, maintenance calls, and all other aspects of property management. Also, not all multifamily tenants renew their leases, which means the paperwork associated with bringing in new tenants and vacating units can be continuous. Hiring a management company or your own property manager is an expense that deducts from the income you take home. Additionally, multifamily spaces are those where people live. This means that the usual “wear and tear” of a space is greater than that of an office building where the main activities are “low repair” like people working behind desks. This means that you will need to repair and replace fixtures and appliances more quickly.

In Conclusion
Multifamily properties are a common addition to many investment portfolios. If you are considering investing in a multifamily property, take the time to tour other properties in the market and look at each building’s performance. And, as always, if you have questions, contact the experts at The Real Wealth Company.

Until next time…..rob

Technorati Tags: , , , , , , , , , , , , , , , ,

If you enjoyed this post, make sure you subscribe to my RSS feed!

Blog Traffic Exchange Related Posts Blog Traffic Exchange Related Websites
Apartment Buildings, Commercial Real Estate Definitions, How to Invest in Commercial Real Estate, Multifamily, Multiunits, Real Estate Investing
0

Commercial Real Estate Investing: More Terms to Learn the Language

Posted by Rob Powell
at June 17, 2009
DID HE SAY CHEESE OR LIENS?

DID HE SAY CHEESE OR LIENS?

Greetings from the metropolis of Cedar Crest, NM!

I hope this post finds all of you doing well.

Today’s post is yet another post on real estate terms/definitions.  Yesterday, my buddy Brian (from the great state of Oklahoma) called me to talk about a business deal he was considering.  After our phone conversation, I realized that I rattled off a bunch of investing lingo that I am not sure if I helped Brian or not.  But luckily, I can call him back.  But what about the rest of us?  If we do not understand the lingo….the language of the investment vehicle (stocks, real estate, etc.), we could position ourselves to lose a lot of money or even leave some money on the table.  So….let’s learn the language…..

Speak the language or DIE! (okay..not really…but…maybe LOSE!…?)

The real estate investment arena is filled with its own language and often features terms from property law, banking concepts 51wD1d5rZnL. SL160 Commercial Real Estate Investing: More terms to learn the languageand feudal times. As a continued segment to help you navigate the real estate investment lingo, we will be periodically posting commonly used real estate investment terms and definitions provided by many sources including www.investorwords.com and www.creonline.com.

This posting will focus on miscellaneous terms related to commercial real estate.

Affordability Analysis
Affordability analysis is the process lenders use to determine an individual’s ability to afford real estate. This includes examining income, available cash, real estate price, liabilities and other costs. Beginning investors should know and understand their affordability assessment.

Cost Value Logic
Cost value logic refers to a process where divisions or assets are analyzed based on economic rent and opportunity cost with the objective of determining which divisions or assets should be bolstered and which should be eliminated. Cost value logic is imperative to evaluating your real estate portfolio. By determining which investments are your highest producers for least liability and bolstering them, you can eradicate troubled investments and free cash for future investing. It will also allow you to limit your liability.

Economic Rent
Economic rent is the amount of money a property could produce if it were leased.

Escalation Clause
An escalation clause refers to a legal term in a contract that specifies that if costs go up, the rent will go up. For example, a multifamily lease to a tenant may state that if the landlord pays the gas bill, the rent may increase if the gas bill increases.

Free and Clear
Free and clear is a legal concept that refers to property rights. A free and clear title does not have liens or legal question regarding property ownership. Title companies and title insurance are used to make sure that real estate transactions only occur for free and clear titles. Free and clear titles are also referred to as perfect title.

General Lien
A general lien is a legal term that means an interest has been placed against all goods, not just the source of the debt, owned by the lienee. General liens do not apply to land or real property. When buying commercial real estate, you should always take title free and clear, meaning there are no liens against the property.

Income Property41WYGVnszfL. SL160 Commercial Real Estate Investing: More terms to learn the language
Income property is any real property (real estate) acquired for generating income.

Rent Seeking
Rent seeking refers to spending limited resources to procure an asset that generates economic rent.

Transfer Earnings
Transfer earnings refer to the dollar amount that a production factor (land, labor or capital) must earn to be more valuable than repurposing it. For example, a multifamily unit property makes more money from leasing individual units than from just owner occupation.

Warranty Deed
A warranty deed given by the seller to the buyer guaranteeing title to the propery.

Well…that concludes today’s terms…..until next time…..rob

Technorati Tags: , , , , , , ,

If you enjoyed this post, make sure you subscribe to my RSS feed!

Blog Traffic Exchange Related Posts Blog Traffic Exchange Related Websites
Affordability Analysis, Commercial Real Estate Definitions, Cost Value Logic, Economic Rent, Escalation Clause, Free and Clear, General Lien, Income Property, Real Estate Investing, Transfer Earnings, Warranty Deed, commercial real estate investing for beginners, commercial real estate training