A colleague of mine in Cincinnati Michael Margolis with Prudential Commercial sent me this information on single tenant commercial real estate investments and if they can help diversify your investment portfolio in a slow economy, particularly in the Cincinnati real estate market.
Investors can find triple net deals which mean that the tenant pays all rent, utility, property taxes, and all expenses related to the property so there is essentially little to no landlord expenses. Investors can get 8%-10% Capitalization Rates. The capitalization or Cap Rate = Annual net operating income / cost (or value). The Net Operating Income is defined as the annual rents minus the monthly expenses. This can translate to 10%-15% Annual Return On Equity and, Including Loan Amortization and Tax Benefits, Compare to a 20%-25% Average annual return over the holding period.
What are some of the advantages of investing in commercial real estate :
* Single Member Equity Investments can be as low as $50,000
* Investment real estate does not corrolate with the stock market. Investors can maintain your return during economic slowdowns.
* Select small banks have funds available for leased properties
* Interest rates are low and cap rates are rising
* Positive leverage environment: borrowing at 6% and buying at 8% to 10% Cap Rates boosts actual annual cash return over 10%.
* Assistance with LLC creation and financing is available.
* Single Member LLC’s Don’t Require a Separate Tax Return.
* IRS Allowed Depreciation and Interest Deductions Provide a Significant Advantage for After Tax Returns vs the Stock Market.