Investment Opportunities Are Everywhere | Financial Flexibility #011
For most people, the stock market is the extent of their prospective investment opportunities. Even at that point, they probably don't understand the stock market fully. In this article, I'll discuss a different investment opportunity, probably one that you've never thought of before.
Understanding Real Estate & NNN Properties
In commercial real estate the property owner agrees to a lease agreement with the tenant. The agreement may require the tenant to cover the maintenance, taxes, fees, and insurance of the property itself. Triple net leases are popular amongst investors due to their steady returns and relatively low risk.
Commercial properties could include medical buildings, offices, shopping malls, banks, and restaurant chains. Think about it, how many strip malls do you see on your drive to work? If you're thinking of investing in a triple net lease you must be accredited with a net worth of at least $1 million or have a $200,000/year income.
Understanding The Math & Potential Returns
Say you find a perfect property, you're accredited and have the cash in hand. This is a hypothetical scenario but this will help you understand potential returns on your investment.
You find a $1 million dollar property for sale with a tenant on a 10 year lease agreement. You go to the bank and get an interest only loan with a 4% interest rate after putting 20% down. The property has a 7% cap rate with a great history/tenant.
This means you're paying the bank 4% interest on the $1 million dollar property, essentially you're paying them $32,000/year. If the property has a 7% cap, you'll be getting paid $70,000/year. Subtract the difference and that's your rate of return.
Slow and Steady Wins The Race
This is cliche but NNN properties are the perfect example of it. I'll take a $38,000 return every year, I don't know many people who wouldn't. If you're smart you can save this return and buy another NNN property in a few short years. It's not about how much you make, it's what you do with what you make.
Use Google. Call a Real Estate Agent. Consult with a mortgage broker or bank. Use every resource available to you. You have more information at your fingertips than you can imagine. There is no barrier to entry!