From time to time people ask me what I should invest in when it comes to real estate. I usually ask them how much money they have to invest, and what is their goal in investing? They usually say they want to fix and flip, or buy and hold, or wholesale. If you analyze their answers, you will find that is not their true goal in investing in real estate, but it is a real estate strategy. In simple terms, you invest in real estate to make money. That should be everyone’s goal. But more importantly, you want to make passive income. Do it once and get paid over and over again. Triple Net Real Estate is a sure fire way to do just that. Specifically, single tenant corporate backed properties. (ie – Walmart, Jiffy Lube, or Chevron Gas Station & Mart.
The true road to wealth is through passive income. Passive income can be obtained three ways. I call it the three R’s: residuals, royalties, and rents. There are probably more, but these are the most common. Let’s start with residual income; the Direct Marketing Association’s members claim that the best and easiest way to make residual income is through network marketing. I find Direct Marketing to be great place to learn sales skills. If you can sell soap, you can sell anything. It can be like another job that annoys friends and relatives to get them to buy some product or vitamin that they really don’t want or need. Unless you are a phenomenal sales professional, don’t bother. If you are a great salesperson and you need capital to invest in real estate, use network marketing to meet that goal.
You don’t have to be the next J.K. Rowling or Martin Scorsese to reap the benefits of royalties, but it helps. I recently attended a tech fair for schools, and I came across children’s books. I picked up one on civil rights, which had big beautiful pictures of Martin Luther King, Robert Kennedy, and Malcolm X. Each page had no more than two sentences about the icons represented on the page. I asked the clerk how much for that tiny book, she said without hesitation $30 bucks. In that brief moment I was thinking I would be a great children’s book writer. No joke. If you are willing to put in the time and effort to write, do it. You can also learn a lesson from directors Eduardo Sanchez and Daniel Myrick, who took a simple Hi-8 video camera into the back woods of Maryland, and made a $100M movie called “The Blair Witch Project”. I’m not saying you would make $100M dollars, but you only need a few bucks to invest in real estate.
Real estate investing has made more millionaires than any other profession. The truly wealthy have moved into real estate from the start or later on their journey toward riches. But let’s be totally clear about what investing is and is not. When you invest in stocks, bonds, or real estate that means you put money into something for a return. You didn’t get into real estate to become Bob Vila or get on HGTV. You wanted to get into real estate investing to make money.
To me, land lording is a job. Maintenance and repairs are jobs, none of which I’m qualified to do. So I would use certified property managers and certified contractors. I would definitely use contractors from Home Depot or Lowe’s so I can take advantage of the service level agreement. If I hire Joe the contractor who works out of his truck, I have to take it on faith that he knows what he is doing. If he screws up the job I have no financial recourse other than a lawsuit. With a certified contractor from a major retailer like Home Depot or Lowe’s, you are assured through the service level agreement that the job will get done without you losing money.
My ex-girlfriend was a real estate investor who owned 3 properties when I met her, and owned 10 when we broke up. That being said, she had one property out of state that required property management and repairs. She ended up trusting a realtor to manage her property and select her contractor for the rehab, neither which was certified. Come to find out, the contractor was borderline homeless, and was living in the house he was supposed to be rehabbing. The electric bill was getting higher every month and the rehab work kept stalling. After investigation, we found out that he had been living there using the electricity and not finishing the job, which should have taken 60 days max, but ended up being several months. After that he went silent. We later found out that he ended up in the hospital with severe cancer and never finished the rehab, and she lost months of rental income.
When you invest in corporate backed triple net properties, there is no land lording, no maintenance and no repairs, just monthly checks.
A corporate tenant is responsible for the repairs and maintenance. If you don’t have a corporate tenant, you are responsible for maintenance and repairs. The property manager is responsible for all the business management of the property. If you are like me, the last thing you want to do is shuffle paper. Again, a certified property management company can handle all of that, and if they do not meet all the requirements of the contract you have financial recourse. If you try to do it all by yourself and mess it up, you’ll lose money and end up hiring a property management company to come clean up your mess. Most professionals don’t have the time, resources, and experience to manage property without losing money, so let the professionals do it.
If you invest in a multi-tenant property, the tenant is only responsible for the square footage in use, but if it is a single tenant property they cover it all. I hear it all the time; my client wants apartment buildings and multi-tenant commercial properties only. I can think of better things to do than pay taxes and insurance on a property with no corporate tenants in them. It’s just one less thing to worry about when the tenant foots the bill. I like sitting in the catbird seat. I like keeping things simple.
Most people look for sound investments in the stock markets that go up and down for no logical reason other than some sort of news from the media. A tenant lease is a contract document insuring that you receive a set amount on a monthly basis for the duration of the lease agreement. A corporate tenant lease is a thing of beauty. It relies on the credit of a robust business with a household name. It is way more reliable than an individual consumer. Your investment is secure for the length of the tenant lease which can be anywhere from 5 to 10 years. Imagine a public company like a Starbucks, CVS, or Burger King backing up a ten year lease. How secure would your investment be?
How do you keep long term tenants?
If you can’t do any of these things, hire a certified property management company that can. Then write off the expense.
There is nothing like getting checks back from Uncle Sam. Interest is often the biggest deductible expense when owning real estate. Property owners get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years. Most single tenant, corporate backed commercial properties range in price from $1M to $20+M. Here are more deductions you can make:
We call it mailbox money because you get a check every month in your mailbox, and you don’t do anything for it. Now you are living the life of Riley because you are just sitting back and checking your mailbox once a month. So when you think of investing in real estate, think long and hard about your goals. Do you want to make money, or create another job for yourself?
Now I know what you’re thinking. How on earth can any one individual investor invest in a single tenant corporate backed commercial property, if they are not a millionaire already? The answer is commercial real estate crowdfunding. You may not be able to own it all, you may not even been a savvy investor, but you can own a piece of the rock. Imagine pulling together a group of your real estate investor friends and investing in a Walmart building.
If you, or someone you know is looking for a commercial broker that specializes in single tenant corporate backed commercial property, contact my friend and colleague Justen Aranda with Executive Real Estate Group.