Should You Consider Real Estate Investment Trusts?

By Joe Killinger

Pulling the trigger on your first real estate investment is daunting and not everyone has the risk appetite to go it alone. 

If you want to start investing but don’t want to take a leap of faith, you may want to consider a Real Estate Investment Trust (REIT).

A REIT is an investment vehicle that can invest in any real estate class and they’re operated by experienced executives. The benefit of investing in a REIT is that you do receive some of the benefits of real estate ownership/investing, but you have seasoned professionals managing the properties. 

Since you’re really buying stock in the company, your investment is spread out over a portfolio of properties along with other investors, which helps to mitigate risk.

REITs are required to pay out substantially all (90%) of their taxable income and most pay above-average dividends, so consult your CPA to see if this may affect your tax position. Of the 172 publicly traded REITs listed on the major U.S. exchanges with market capitalizations greater than $500 million, 94% have higher dividend yields than the average S&P 500 company.

REITs are excellent stocks to add to any long-term investment portfolio. Not only are REITs income generators, but as property values rise they have the potential to produce some impressive returns over time. Similar to when you look for your own properties, you need to look into the assets that the REIT has that has an interest in buying.

Due to the strong dividend income REITs provide, they are an important investment both for beginning investors, retirement savers and for retirees who require a continuing income stream to meet their living expenses. Instead of worrying about managing your property you simply can look over your monthly statement and monitor the management team and the assets they are investing in, REITs aren’t boring, steady investments. On the contrary, they sometimes go up and down in a big way, and move sharply in and out of favor with investors.   The main negative of investing in a REIT is that you really have no control over the investments, or when they sell off a part of the portfolio, you are trusting the managers of the REIT to do this for you.

REITs can be a great way to get yourself knowledgeable on real estate investing and is a relatively safer investment than jumping into a Flip or smaller investment and learning how to manage your investment.

Also, check out the below article on how to start investing in real estate.

The ultimate beginner's guide to investing in real estate

Should You Give Rental Concessions to Existing Tenants Before They Ask?

In the last few years we have seen several trends for retail properties; everything from positive outlooks, to “are we on the brink of a retail apocalypse”.  

It can be quite disarming to try to determine what to believe.   One thing though will remain a truth throughout all of the changes, and that is…

If a landlord does not adapt to the changes we will see then they are sure to bear the brunt of any downturn. Put another way, “By failing to prepare, you are preparing to fail".  

It’s definitely one of my favorite Ben Franklin quotes, but what does that mean for a retail landlord that may be locked into long term leases?

One of the tools an experienced landlord has at their disposal is the ability to reposition the lease to either create value, or assist a tenant during hard times. 

During a slowdown in the economy a tenant may approach a landlord and ask for rental concessions as their sales may no longer support the rents they are paying.  Before agreeing, the landlord should take the necessary steps to determine what is best for their interests. 

The first step of course would be to determine whether or not the tenant actually needs a rental concession, or if they are just asking to increase their bottom line. 

A landlord should ask for not just the guaranteeing entity’s financials but also the financials specific to this location.  If the tenant is unwilling to give it up, then they are likely not in dire need of the concessions they are asking for.  

The next step is to determine whether or not the tenant is paying market rate rents.  If the tenant is already paying less than market rate rents, then it may be more prudent to offer them a buy out of the lease, and then renting to a new tenant that is at a higher rate.  

However, if the tenant is paying market rate or higher rents then a landlord needs to closely look at options they may need to consider. 

For instance:  What is the current market vacancy for the area? How difficult will it be to lease the property at market rate?  How long will it take?

If you do lease the property at market rate what concessions would you have to give a new tenant?  By knowing all of these factors ahead of time a landlord will know immediately what steps they should take if

Why Now is a Good Time to Buy NNN Properties

Many of these types of properties are typically single-tenant retail properties that are occupied by tenants with varying credit ratings on “net, net, net” terms, meaning the tenant is responsible for real estate taxes, insurance, and all maintenance. Many of the properties have high credit rated tenants with proven business models and many even have corporate guarantees. You also have the other end of the spectrum, including strip centers with a mix of small mom and pop shops and franchises that may or may not have a guarantee by the tenant.

Many real estate investors like triple-net-leased properties due to the ease of management, since the tenant takes care of all bills, maintenance and repairs. Many consider these investments to be equivalent to a bond, especially with a strong tenant with a long-term lease and a corporate guarantee. The current timing in the market could be ideal for Triple-Net assets as we are potentially heading into a bit of a slow down with the economy and the real estate market, and this asset class tends to hold its value better than most. I spoke with the George Pino, CEO of Commercial Brokers International, to get his thoughts on why now is a good time to be buying Triple-Net properties: “Now is a good time to take advantage of the low interest rates being offered for NNN properties. With current CAP rates, combined with low interest rates, we’ve been able to identify investments that can easily output a pre-tax seven percent cash flow, with a credit worthy tenant. This return, when combined with the tax benefits of real estate ownership, is outperforming almost every other passive investment alternative in the market.”

With the landscape of retail changing you will want to be sure to do your due diligence as well as have great representation as you seek out your investment properties as there are potential risks. The credit rating on the tenant can be tricky as not all credit ratings are equal, with credit ratings being determined by one of the three ratings firms (Standard & Poor’s, Moody’s, & Fitch), ratings of BBB- and higher (S&P scale) are considered “investment grade.”

Triple-Net can be great investments but just like any investment the due diligence and strong investment fundamentals are key, that and good representation!

Why Now is a Good Time to Buy NNN Properties

Are You Liable for a Vacation Renter’s Illegal Activity on Your Property?

Are You Liable for a Vacation Renter’s Illegal Activity on Your Property?

I was recently speaking to a host of a vacation rental property and he had several questions about their liability as it pertains to the people they rent their place to. The main one being that if they would rent to a sex offender and the neighbors were to find out what is their liability, or worse yet, what would happen if the renter committed a crime on their property or in their community?. What are the responsibilities of an owner of a property in vetting out a tenant? Especially in the many states that do not differentiate between the percentage of responsibility vs. the percentage of liability. Common sense would dictate that an owner may be liable for them especially if they rented their home to a criminal or sexual predator and something were to happen; although, after a quick internet search I really couldn’t find a bunch of cases regarding this issue.

I do believe that having as much information on someone you are renting too is extremely prudent and many of the short term (vacation) rental sites make it all but impossible to run a background check because they do not publish the parties’ full identities in order to prevent the parties from going around their back to make deals out their control.

We as property / home owners that utilize these short term rental sites have a responsibility to our community, friends and neighbors and one bad tenant that creates a lawsuit for you can easily erase months or years of your investment income. In doing some research you will find that more often than not there are no issues with short term renters but if you are unfortunate enough to find one that does it can be a nightmare, a nightmare they may have been found with a simple $30 background check.