The market is going up!
The market is going down!
We’re facing another financial crisis.
Sounds stressful, doesn’t it?
When we mention diversified investment, we think of a portfolio which consists of numerous different assets with the highest return for the least risk. This is so since various assets (stocks, bonds, commodities etc.) are differently affected by fluctuations in the economy.
Having a diversified portfolio means lower overall risk. When one asset falls, the other one may rise, or fall by a smaller percentage. A diversified portfolio is an excellent option during financial crises. And since the average span from one crisis to another is around 10 years, any investor that thinks long-term will be affected by at least a few crises. This makes diversification a necessary step for any smart investor.
Remember the decline in stocks asset value back in 2008? Investors panicked and started to look for asset allocation when stocks dropped more than 30%. In just a few months the US economy lost 22 Trillion dollars.
Yet, we meet investors that hold the same type of investment, only from different sources. This is not really diversification, even though your stock broker may be telling you so.
Bonds, Stocks, And Market Volatility
Bonds are basically loans that investors give to a company, on a fixed period, for a fixed interest rate.
As fixed-income investments, bonds do pretty well during an economic stagnation. Investors in bonds want lower risk, so they take lower returns for longer periods of time.
People who invest in bonds will want to keep their assets through down periods.
As a paper asset, bonds are stable, reliable…and not-so-profitable. This is why people interested in paper assets will want to look elsewhere for a more profitable investment.
During economic growth-periods, Stocks (aka Shares) do pretty well. Being measurable parts of a growing company, shares will grow when the company grows.
When things look good, investors get more confident and are looking for the highest returns, so they bid shares up. Since most investors are usually optimistic about the future, they tend to take higher risks during these growth periods.
But, there’s always the looming crisis, and investing in stocks is not a constant growth scenario.
Bonds and stocks are both subject to market fluctuations.
Legal entities will be less interested in taking loans for higher interest, making bonds less attractive to investors.
Shares are also less interesting as investors will not be sure if they’re buying shares at rock-bottom prices.
Although these market fluctuations sound big and scary, when we look at them on a daily basis, we’re talking about very small changes.
The question is, do you really want to bother every morning with a value fluctuation of 0.1 %?
According to the Stock Trader’s Almanac, June is one of the worst months for S&P 500 and Dow Jones industrial average. Looking back in the past 100 years, the S&P 500 has an average increase of 0.1% during June, whereas the Dow Jones fell to an average of 0.3%.
In most cases, you wouldn’t even flinch over a 0.1% fluctuation. Yet in the stocks market, this is enough of a fluctuation for a “best month” label. If such a small variation makes a month “best”, for some people this may be a bit too stressful and volatile type of investing.
It can be very challenging to stay rational when you have invested a lot in paper assets when the stock market takes a free-fall. This is painfully more difficult for us investors who are old enough to remember the Enron days.
We, don’t have “all the time in the world” to wait for the rebound.
We don’t need the adrenaline rush when our stocks go up 0.1%.
We need a diversified, reliable, stress-free investment plan.
So, What Is Really A Diversified Portfolio?
Buying different stocks and bonds, and thinking that’s “diversifying” is a false state of security.
The bottom line is that you’re still owning paper assets. Only from different companies. These paper assets are still extremely susceptible to market fluctuations.
As an investor who is closer to a retirement lifestyle than to a backpacking trip to Bali, you will want to have your money invested in something that is more “real”, more tangible.
Things like precious metals, exotic cars, collectible fashion items, artwork… all this is putting your money in assets that you can touch, keep and sell at a profit. These are good ways to diversify your portfolio and get into a position where you will be less volatile to market fluctuations.
Commercial Real Estate is another great investment diversification route.
Perhaps it’s actually the best investment type. You can hold a property that appreciates over time while getting solid, positive cashflow from rent.
One of the best ways to get the most out of your investment budget is to buy a single-tenant commercial property and rent it out to a reliable tenant like for example 7-11, Taco Bell, or any other store or restaurant brand that you regularly visit.
Let’s take a closer look at how including Commercial Real Estate Investments may be the smartest diversification step.
Benefits Of Investing In NNN Commercial Real Estate
Before we get into the WHY, let’s take care of two definitions.
Commercial Real Estate is any real estate property that is built and licensed for doing commercial activities. A commercial property will be anything non-residential. So warehouses, small shops, drive-through restaurants, shopping malls, etc. All these businesses need a property that is intended for commercial use.
Triple Net Lease (or Net Net Net, or NNN) is a type of a lease agreement where the tenant takes over all responsibilities of maintenance work and expenses around the given commercial property. The landlord has no expenses. The rent income is clean profit with no liabilities toward investing any money into the property during the lease agreement.
For an investor to own a solid commercial property and lease it under an NNN agreement there are very few risks. When you purchase a property that is relatively new, in an attractive location, there is a very little risk of that property remaining vacant. Plus, properties usually appreciate. And you get many tax benefits.
Let’s go through several key benefits of diversifying your portfolio and getting into real estate.
1. Full Control Over Your Investment
Investing in a commercial real estate property puts you in charge of your property.
You can do anything you want to increase its value to you:
- make upgrades to the property,
- manage costs,
- set a higher rent, or
- look for better tenants.
Even though you are still practicing in the economy and are susceptible to economic changes, your investment is much more stable since the building itself has an intrinsic value that cannot just vanish overnight.
2. Leverage Debt
Owning a property with a mortgage can be great in a rising market. Commercial real estate appreciates over time, and appreciation rate is usually greater than the inflation rate.
But, let’s say it only appreciates 3% annually. If you set 3% increase on the property and 20% down, you’ll get 15% cash-on-cash return.
If you look 5 years ahead, you’ll see a double equity at this rate.
We can’t say the same about stocks, they usually produce 7-9% a year.
3. Tax Benefits
Depending on the property type you decide to invest (single-tenant, multi-tenant, commercial, etc.) you will get different tax benefits.
For example, if investing in a home, you have the chance to deduct the interest on more than $750.000 in mortgage indebtedness. You can own your property if you are in 28% or higher tax bracket. The expenses related to the property are also deductible towards your income.
There’s also the famous 1031 Exchange that most commercial property owners use. With this rule, you get to defer taxes and put all your rental income together with the value of your existing property, and scale up toward a larger property.
4. Intrinsic, Safe Value
Commercial real estate assets are, well… very real. Unlike stocks and bonds, the value of a property rests on some intrinsic like the value of the land, the building, it’s desirability on the market etc.
You can see the property and actually use it. A real estate property can improve your life by providing positive, reliable cashflow while appreciating as an investment over time.
Also, when have you heard that a property was stolen? People may break in, rob the place, but they cannot steal the place. There are languages in the world where Commercial Real Estate transliterates as immovable assets.
A Commercial Real Estate Investment is a very important diversification strategy, especially for investors with a finely tuned sense of value.
5. Transparent, Positive Cashflow
Evaluating a commercial real estate property means calculating the expenses and rental income. An ideal situation would be borrowing at 3% and renting out at 6% plus yield. You can easily get into commercial real estate once you have the necessary financial backing.
What really triggers wealth building is the constant cash flow and equity. On the other hand, investing in stocks and bonds means that you will have to rely on and trust company’s reports.
Often companies tweak their numbers so that they improve the situation, at least on paper. With commercial real estate, it’s fairly obvious what the value of the property is, and what sort of benefits it is getting you through rental income.
6. Lesser Volatility
There could be a decline in your commercial real estate property value and you wouldn’t even feel it.
Investors in commercial real estate still enjoyed their investment returns during the 2008 financial meltdown. This was not the case with stock investors.
Constantly looking at the numbers going up and down gives you stress and we all know that stress is a silent killer.
By picking up this less volatile investment, you are saving yourself from further headaches. Ending up in a better cashflow situation is just the cherry on top.
7. Joy Of Ownership
Making profit just for the sake of it is not exciting at all. Yet, having physical rental assets at hand will make you proud that you have been able to make a purchase a while ago.
You don’t even have to work- you can enjoy the beach or play golf and still make money.
Taking risks and investing in commercial real estate pays off, sooner or later.
There is no better feeling than closing on a property and enjoying its ownership.
What’s more, your children or grandchildren can inherit the property after your death. There is also an option that your heirs inherit the property based on the value of the property. Here, the costs are higher, but there is a lower tax liability in case of property sale.
8. Value Protection
You can further protect the dollar value of your investment when you buy a property in an economically stable region. These regions are less prone to value-loss due to unpredicted economic cycles.
In cities such as New York or San Francisco, property prices fall the least and recover pretty soon.
You may also find it interesting to invest in lower-cost states such as Texas, Tennessee, or Nebraska.
Young investors that don’t have the needed amount of money for a commercial real estate deal invest in stocks because it’s easier.
But older people who have a larger net worth should focus on owning a physical, commercial real estate property.
Skip The Learning And The Work By Getting A Buyer’s Agent
Now you might think: Why would I invest in commercial real estate when I don’t know anything about it?
Yes, investing in commercial real estate properties can be tricky sometimes. For some investors, commercial real estate is still an unknown territory and some haven’t even considered it, thinking they cannot afford it.
But, just because it’s not easily accessible, it doesn’t mean you should not consider it as an investment opportunity.
Why shy away from an investment that will create constant cash flow, many tax benefits, and actual portfolio diversification? Yes, it’s a bit more challenging than buying stocks, but the benefits are difficult to ignore.
It is in your best interest to simply get a Buyer’s Agent to work for you in figuring out how to take your first step into commercial real estate.
A Buyer’s Agent is a commercial real estate agent that you can hire to help you figure out your budget, help with financing, and find you the best deal for your budget. And the best thing is that Buyer’s Agents do this for you without any payment from you. They split the selling fee with the Seller’s Agent.
Despite the regular services that commercial real estate agencies offer, Buyer’s Agents may also address further issues. A Buyer’s Agent may help in checking the latest mortgage rates and how to get various written offers as a means of leverage to have the lowest interest rate. Investors with sufficient funds looking to purchase a property can take advantage of the low rates.
If you own a business and are taking care of your family, you probably don’t have the time and energy to deal with all the work that comes along with property hunting and becoming a landlord.
Owning commercial real estate is more than just a fair exchange between a property owner and a property user. It is a much more complex process than just collecting rent. Each type of investment has different responsibilities and requirements and a different amount of risk.
After all, why would you bother doing something by yourself when you can hire a professional to do it for you, for free? A Buyer’s Agent will look for properties and keep up with the current listings. You won’t have to waste time previewing various properties which don’t meet your needs. A Buyer’s Agent may also provide services such as writing up offers, delivering contracts to the title companies and lenders.
When you have a Buyer’s Agent by your side, you won’t have to deal with the process of finding the perfect property for you. You can have the Buyer’s Agent do the property searching and all the details around the purchase, while you spend your time doing something else (whether work or leisure).
And the best thing about a Buyer’s Agent is that you are not spending any money on their service. Buyer’s Agents split the sale commission with the Seller’s Agent who would otherwise keep the entire sum for themselves.
Why Choose Westwood As Your Buyer’s Agent?
People will usually think that a Buyer’s Agent is just a Buyer’s Agent. But, not all agents are the same. And this should not be a surprise. You have a difference of expertise and professionalism in just about every service-based industry.
Westwood agents are special agents. All jokes aside, purchasing a commercial real estate is no small step. And you want a competent, experienced, reliable Buyer’s Agent to handle all the details for you.
With over 18 years of experience, Westwood has established great working relationships with Seller’s Agents, property inspectors, mortgage lenders, title companies and tax and legal advisors.
We can coordinate on your behalf with proven professionals in each of these fields. This way, we help you put all the pieces together and have a successful purchasing process.
How Does Westwood Do Commercial Real Estate Transactions
One of the best things about completing a real estate deal is the relationships we create with the buyers. Our goals are to provide the best service for you and to protect your interests. We’ll hear out your needs, budget, cashflow and desired location. After reviewing many properties, we create a short-list of the best ones, with high potential for foot traffic, and within your budget.
After submitting a formal Letter of Intent, the Seller’s Agent works on that offer and you gain ownership. Since we have extensive experience in the business, Seller’s Agents enjoy working with us. Westwood’s Letters of Intent are almost as good as a closed deal since they know we’ve already addressed any financial and legal issues.
Seller’s Agents know that we are a serious company, therefore our Letters of Intent are serious offers. We do all the tough work regarding the research, the gathering of property details, and the negotiation of a hot deal.
We will make sure that the deal you get meets your expectations and requirements. We would be glad to assist you and address issues regarding the purchasing process. Our team is always looking for new, hot deals in the market to make sure that clients can choose from a variety of properties.
So, if you need any help in buying real estate property, please just give us a call or fill in the online application form available site. Some of our agents will reach out to you within few hours.Tags: bonds, Buyer's Agent, commercial real estate, commercial real estate investing, commercial real estate investors, diversification, diversifying investment portfolio, NNN, ROI, Seller's Agent, stocks