Welcome back to PART IV of this series of posts dedicated to investing during uncertain times, and as I promised on PART III, I will discuss a little bit about what I think is a safe investment in Real Estate, examining the positive and also the very few negative aspects of them.
This is the perfect investment for those foreign national investors by the way, those that simply cannot or do not want to deal with the property management aspect of the asset since they are not in the US.
The CAP is generally lower in this type of investment and also is directly related to the area where the building is located, but the NET revenue is nevertheless good, not to mention safe, since it is considered a very conservative lower risk type of investment.
Across the board nationwide, any of these chain drugstores generates a NOI of roughly 7.25%, (the lowest I have seen is right here in Miami-DADE County where it is very hard to get anything above 6%, but then again premium location comes with a premium price tag).
Is location at all important for this type of investment? Well, since the leases are corporate guaranteed, Yes and No, and let me elaborate a little on that; either company will usually sign a very long lease, I have seen 20 years initial term with 10 options of renewal for 5 years each; every lease is structured differently but more or less they have a similarity among them and that is their length, if the Tenant decides to close that location they will pay the rent for the reminder of the initial term or the term they are currently on, risky? Maybe, but if you consider the stability of these type of tenants the risk is very much mitigated.
Aside from Real Estate I am a day trader and I have performed the due diligence of analyzing these companies from a trader stand point, and they look solid as a rock, plus remember that the Owner/Landlord is getting a check every month without any effort on his part, as I would call it “Non Energetic Income”, the other factor that may stop the average investor is the price tag on one of these which can easily run up the double digits territory (as in the $10million +range depending on the area where is located).
Is location at all important for this type of investment? Well, since the leases are corporate guaranteed, Yes and No, and let me elaborate a little on that; either company will usually sign a very long lease, I have seen 20 years initial term with 10 options of renewal for 5 years each; every lease is structured differently but more or less they have a similarity among them and that is their length, if the Tenant decides to close that location they will pay the rent for the reminder of the initial term or the term they are currently on, risky? Maybe, but if you consider the stability of these type of tenants the risk is very much mitigated.
Aside from Real Estate I am a day trader and I have performed the due diligence of analyzing these companies from a trader stand point, and they look solid as a rock, plus remember that the Owner/Landlord is getting a check every month without any effort on his part, as I would call it “Non Energetic Income”, the other factor that may stop the average investor is the price tag on one of these which can easily run up the double digits territory (as in the $10million +range depending on the area where is located).
Other good ones and solid as well are the AT&T’s and the Verizon Wireless’ which can bring an even higher CAP but with shorter term leases though, nevertheless the top Telecom companies are nowadays very solid.
Mobile phone traffic in the US is at an all time high and in crescendo.
Dollar General stores are also in my list of “good” mainly because their CAP rate usually is above 8% and sometimes over 9% depending on the area.
They are mainly located in lower income rural areas and prices generally are a little over $1million, very good for those investors with a decent amount of capital but not high enough to get into a chain drug store deal; of course the rule of thumb here is “the higher the CAP the higher the risk” like everything else in life, but once you have evaluated the status of that corporation which eventually would be your tenant, and once you have established that indeed is a corporate guaranteed lease the risk is greatly diminished and the investment therefore is a lot safer than buying a strip mall or apartment building. I will get into the GSA properties on my next final PART V of this series. For now....
Mobile phone traffic in the US is at an all time high and in crescendo.
Dollar General stores are also in my list of “good” mainly because their CAP rate usually is above 8% and sometimes over 9% depending on the area.
They are mainly located in lower income rural areas and prices generally are a little over $1million, very good for those investors with a decent amount of capital but not high enough to get into a chain drug store deal; of course the rule of thumb here is “the higher the CAP the higher the risk” like everything else in life, but once you have evaluated the status of that corporation which eventually would be your tenant, and once you have established that indeed is a corporate guaranteed lease the risk is greatly diminished and the investment therefore is a lot safer than buying a strip mall or apartment building. I will get into the GSA properties on my next final PART V of this series. For now....
Cheers!
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