Sunday, November 25, 2007

Triple-Net Investment Opportunities Abound

I write a lot about my belief in the strength of multifamily real estate as an investment. But there there are a number of retail opportunities available for investors, as well. One reader wrote me over the weekend and asked about the kinds of companies that sign NNN, or Triple-Net, leases.

Here are a few examples of the kinds of companies that will sign long-term NNN leases:

-- Seattle-based coffee house giant Starbucks just announced full year 2007 results, which included a 21 percent increase in net revenue, 5 percent increase in comparable store sales, and earnings per share growth. The company plans to add 1,600 U.S. Stores in 2008.

-- TJX Sees Potential for 700 More U.S. Stores. The Framingham, Mass.-based The TJX Companies, Inc. , an off-price retailer of apparel and home accessories under banners TJ Maxx (851 stores), Marshalls (777 stores), Home Goods (287 stores), A.J. Wright (130 stores) and Bob's (34 stores) across the country, recently reported its third quarter fiscal 2008 results. Net sales increased 6%, comparable store sales increased 3% and net income increased 13% over the previous year. In the U.S., its TJ Maxx stores produced the best results. Some stores are stand-alone NNN opportunities, while others are in larger shopping malls.

-- Pet Supermarket has opened its largest store yet in Mirimar, Fla. The Miami-based Pet Supermarket, pet supply retailer with more than 100 stores nationwide, opened an 11,000 square feet superstore, significantly larger than the company's standard store format of 6,000 to 8,000 square feet. The store is a test concept for future openings. The company currently has stores in Tennessee, Alabama, California and Ohio, and intends continued growth.

I also receive many notices of investment opportunities for standalone buildings housing Advance Auto Parts and Walgreens pharmacies. Each of these companies typically signs long-term leases.

In my next post, I'll explain the concept of Triple Net leases, and their many hybrids.

Tuesday, November 13, 2007

'Mailbox Money' Approach Opens An Investors' Mind To Possibilities

Recently, our office represented out-of-state buyers who purchased a four-story office building in downtown Columbus. Downtown revitalization here is such that strong potential exists to take the 1st and 2nd floors to office space, and the top two floors to residential. Downtown living is hot in many cities. While the high-rise/loft residential market has softened here somewhat, the city still is providing 10-year property tax breaks if you buy a downtown condo or loft.

Would that be enough to get you to invest? Who knows? My point is that there are many different types of investments. Office, retail, industrial, multifamily, and combinations of all. There are office condos, multifamily over retail and/or office. The buyers of the building here, at the corner of Gay and High Streets, saw that the property was being offered for auction. They took a look in advance and bought it at the sale.

It's all about your comfort level. In the case of this building, being out of state, the new owners will hire a management company, and our group will be presenting a management proposal for them to consider. A lot of potential investors don't initially consider real estate a viable possibility at first, because they don't know about "Mailbox Money." Their concern is "how will I take care of the real estate?" Mailbox Money is the concept where an investor does not have to worry about the property -- a management company takes care of all leasing, management, maintenance, etc. An investor merely receives an income check each quarter and a status report.

The bottom line? Find an agent you trust, find an agent with the heart of a teacher -- not a salesperson -- and give them the opportunity to help you understand the many income and exponential tax advantages of different types of real estate. Then, exploit that agent's understanding of the marketplace to help you find a property that meets your budget, and helps meet your financial goals. And don't be stuck solely on income generation. Income is highly important, but the tax advantages on the back end of the transaction are enormous.

Thursday, November 8, 2007

Honored By Nomination

I was honored recently to have been recommended by the nominations committee of Columbus Real Estate Exchangors for election as president of this incredibly dynamic organization. I am not alone, however. The full slate of four nominated officers to direct the activities of CREE for the 2008 business year are: myself (president); Tony Yacoub, broker, Ohio Commercial Real Estate (vice president); Amber Balo, agent, Furman Tinon Real Estate (secretary); and Wendy Baldwin, broker, Baldwin Realty Group (treasurer). The slate of recommended officers for 2008 was presented to the 50 or so members who were present this morning for our weekly marketing session.

CREE is a member of the Ohio Commercial Realtor Exchange Association (OCREA) and meets weekly to discuss investment properties, problem solve on the brokerage of difficult to sell properties, and work together to assist our clients with their investment needs, particularly in the area of 1031 tax-deferred exchanges. Our client base, while Central Ohio focused, own investment real estate all over the U.S. I do not mean to sound boastful but CREE's membership, which numbers more than 100, has been described by some in our industry as "the most creative minds in real estate."

To my fellow Realtor members who comprise the CREE nominations and executive committees, I thank you for your confidence in me. I am proud to be a part of this incredible organization, and I look forward to the election at our December 6 holiday breakfast.

Friday, November 2, 2007

Credit Crunch Claims High-End Ohio Home Builder

This is not an investment story, but it illustrates how real estate is being impacted by the credit crunch. Long time high-end home builder C.V. Perry has shut its doors forever. Click here for the story.

Comical PSA Encourages Financial Planning

The comedy is a touch on the lame side, but the message is HIGHLY important. Don't wait to do your financial planning. A buddy of mine recently showed me a statistic that stated one in five people would rather go to the dentist than talk about long-range financial planning. I can't stress enough the importance of financial planning. Don't let your estate "be activated" without you having a say in your family's financial future.

Click on the URL below to see funnyman Frank Caliendo make this important point in a great public service announcement.

Emailer Asks About 'Boot'

Recent email from a Cash On Cash reader -- "What is Boot?

Section 1031 of the Internal Revenue Service code offers an excellent opportunity for real estate investors by means of deferred tax exchanges. But investors also need to be very careful about getting into a 1031 exchange boot. If they do, they might still end up with a tax bill that they were trying to defer. Here is why. Under current IRS 1031 exchange rules, only "like-kind" property held for business or investment purposes qualifies for a 1031 exchange. There are a number of things, however, that if included as a part of the exchange, can trigger a capital gain tax bill on the portion of the exchange that they represent. These examples are called a 1031 exchange boot. A 1031 exchange boot can include any item in the trade that is not of the "like kind" as defined under section 1031 of the IRS tax code. Quite often people mistakenly get these boots included in their 1031 exchange, and they unfortunately will end up with a capital gain tax bill.

The two most common types of boots that a real estate investor come across are a Mortgage boot and Cash boot. There are also many other types of boots like personal residence boot, and personal property boot, etc.

A mortgage boot on your 1031 exchange takes place when the investment property you buy has a mortgage debt of lesser value than the mortgage debt on the property you happen to sell. It is strongly advised that the real estate property you buy should have a mortgage debt equal to, or greater than the property you are selling. In the rare case that the real estate property you buy has a lesser mortgage debt amount than the property sold, the difference in the mortgage value will be taxable to the investor.

To avoid a 1031 mortgage boot, you have two choices -- 1) If the seller of the property refinanced the property and you happen to assume the new higher debt, you are allowed to finance it through a new loan or a "land sale" contract. 2) Simply add cash to the deal and the cash added into the deal offsets the debt relief on the property sold by you.

Let's switch to a cash boot discussion. By definition any cash or other cash equivalent value received ex. (promissory note) in a 1031 exchange is also not included in the "like-kind" property and is considered as a cash boot. On any such income from capital gain taxes are applicable or if the cash amount is a composite amount of principal and interest, the capital gain taxes are always charged on the principal amount. If this cash happens to be held for a longer period and you earn any interest payment from that, those interest payments will also be taxable as regular income. Keep in mind, if the seller is paying cash for any repair charges that are required by the buyer then the amount paid by the seller towards the repair charges are considered as a cash boot and then it would also be taxable.

Thanks to "Luke" for the great question!