If you’re an investor who is already retired or approaching retirement, then finding the right investment vehicle is essential.
A 65-year old couple can expect to spend $266,000 over the course of their retirement on Medicare premiums alone. This doesn’t include the amount spend on out-of-pocket or long-term expenses, either.
Combine this hefty fee with an additional 70% to 90% of your pre-retirement income. It’s easy to see why many people worry about having enough money when they retire.
However, what if instead of thinking of retirement money as “fixed,” you set up a system of passive income. With this passive income you continue to make money, even if you don’t ever step into the office again?
Most people think of stocks and bonds when they think of passive income. The truth is their value is far from guaranteed, as so many investors discovered in 2008.
Not All Commercial Properties Are Alike
While commercial real estate properties offer an excellent way to add passive income to your retirement fund, not all commercial investment properties are the same.
Here’s why.
Difficult to Enter the Market
Many investors are attracted to high profile areas termed “gateway cities.”
These are termed primary markets. They include Boston, New York City, Washington, San Francisco, Los Angeles and Chicago. They are considered extremely desirable by business owners and consumers.This means that property prices are sky-high, and competition is stiff.
Because of the steep prices of even the smallest investment property, some investors call these “trophy properties.” Although they might have high yields, it’s next to impossible to find one. Though they may offer high yields, they gain very little equity due to the exceptionally high cost of the property.
Specialty Properties Require Previous Experience In The Field
Other property types require extensive experience in a specialized field in order to succeed. For example, owners of elder care facilities must have years of experience with the legal, medical, and business side of running an elder care facility.
Another specialized property type that requires years of experience are shopping malls. Although some shopping mall owners have discovered how to compete against e-commerce behemoths like Amazon, crafting a successful strategy requires an understanding of experiential retail, tenant dynamics, and a host of other topics.
Multifamily Properties – Not For the Faint Of Heart
Multifamily properties can be extraordinarily rewarding for the right type of investor.
Because there are a wide range of multifamily property types, beginner investors can try their hand at a smaller building with just 6 tenants, adding on more buildings or trading in for larger ones with time.
However, even if you hire a management company, you’ll still need to oversee the management company and make crucial decisions about the property. Whether it’s dealing with frequent vacancies or deciding when to invest in capital expenditures, if you expect to turn a healthy profit you must remain involved in the property on at least a monthly basis.
On the other hand, triple net lease properties offer numerous advantages for the retired or soon-to-be retirees.
Triple Net Offers A Steady Income
Tenants of triple net properties typically sign leases for anywhere from 15 to 25 years. Instead of worrying about how to fill a vacancy, NNN property owners can sit back and know that they’ll receive a certain amount of money each month, like clockwork.
Even better: most triple net leases include automatic rent increases, which means that not only will your monthly income will increase without you having to do anything at all, but you will continue to build equity over the term of the lease.
No Management Responsibilities
With triple net properties, the tenant pays nearly all expenses associated with the property.
That includes all expenses including maintenance and repairs (often this includes capex repairs such as roof and HVAC), property insurance, and any other normal fees associated with leasing the property.
Unlike residential properties, which are often damaged by tenants, triple net tenants are committed to ensuring the property remains well-maintained.
Easy to Get Financing
Lenders are generally eager to finance triple net properties.
You don’t need a high credit score in order to qualify for a loan, since lenders look at the strength of the tenant when evaluating a commercial property.
Thus, if the property is occupied by a strong, creditworthy tenant, and there is plenty of time left on the lease (ensuring you don’t have to worry about an upcoming vacancy), then they are likely to approve the loan.
If you choose a self-amortizing loan, the property will be paid off by the end of the original lease term, so that even if the tenant leaves you will still own a valuable property – debt free.
Triple Net Lease Properties Offer Surprising Tax Benefits
Even if you already own residential real estate, it’s easy to get started owning an NNN investment property. Using a 1031 exchange, you can sell as many of your properties as you choose, buy a triple net lease property, and defer any capital taxes owned on the sale.
Even if you choose to keep some of your residential properties, triple net lease properties are an excellent way to diversify your investment portfolio.
You Can Buy A Triple Net Property In Any State
Because triple nets are pretty much management-free, you’re not limited to purchasing one in your home state.
That means that if you live in a city like New York or San Francisco, both of which are gateway cities and super-expensive premium properties are the norm, you can easily head to a smaller, equally lucrative city.
Aside from flying in for your initial due diligence trip, once you sign on the deal, you’ll only have to think about the property when you head to the mailbox to pick up your monthly check.
If you want to learn more, please do not hesitate to contact Westwood by our free online consultation form on our website.
