Real Estate Investing for Retirement, It’s The Cash Flow That Counts
Posted: Aug 01, 2006
Living comfortably in retirement is not necessarily about how much money you have, it is about your cash flow. The millionaire earning 2.5% in the bank ($25,000) is surviving, the millionaire with 5% in bonds is doing better, and the millionaire receiving 8-10% in real estate is living well. Which millionaire do you want to be?
There are five important economic attributes that compel me to invest in income producing properties:
- Real cash returns
- Principal amortization of the mortgage debt
- Appreciation
- Partial tax shelter through depreciation
- Hedge against inflation
For the individual that does not want to, or afford to, directly own and manage income property, he/she can invest in real estate partnerships. There are real estate investment companies that acquire properties, form a LLC or partnership, and raise equity capital from individual investors. An investor can buy one or more units (the ownership is broken down into units) and is a passive investor. The investor can use this type of investment for portfolio diversification and real estate diversification.
Real estate LLC’s are not liquid investments. They are typically single asset entities with lives typically ranging from 7 – 10 years, although they may be much shorter or longer. There is not a ready market for individual units, so investors need to plan for a long term hold. If your goal is retirement income and you like the deal, you want a long term hold. These types of investments can also be placed in SEP’s, in children’s trusts, or family limited partnerships. Always seek the advice from a competent tax professional before investing to determine suitability. The minimum investment size varies, but typically ranges from $15,000 – $50,000, with some up to $250,000.
There are some important aspects of LLC’s to scrutinize before investing. Sponsorship is the first. Does the sponsor have a proven track record? Is the sponsor experienced in managing and leasing the type of property be acquired? Ask for references of current investors. Next is the deal itself.
The sponsor should have cash invested along with you. Sponsor compensation ought not to be solely front end loaded, rather based mostly on the performance of the property over the ownership period and value created upon a sale or refinance. The third area is the projected statement of income and cash flow. Does it include all of the expenditures of owning that type of property? Ask an expert in that property type to make sure the sponsor is adequately reserving for future capital expenditures, tenant improvements and commissions.
Real estate investing is a fun way to create wealth and cash flow for your future.
Mark W. Reiling, CRE, SIOR is president of Towle Properties, Inc. a real estate investment company that forms real estate LLC’s for individual investors. He is also a principal of Colliers Turley Martin Tucker.
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Posted: Jul 10, 2009
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Posted: Jan 30, 2009
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Posted: Jan 30, 2009
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Posted: Nov 06, 2008
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Last year at this time, the first signs of problems in the investment market were evident. An investor had placed a property under letter of intent and was getting an early start on his due diligence while the purchase agreement was being drafted. He figured he had 10-12 basis points of wiggle room if interest rates moved against him. During the following three weeks the 10 year Treasury moved 40+ bps and loan spreads increased by another 10 bps. The deal was doomed. He was not alone.
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Posted: Dec 29, 2007
What a year for investment real estate. It started off smokin’ hot and ended up just above freezing. High leverage, low interest rates and loose underwriting fueled unbridled deal making. Debt continued to flow freely as it did in 2006. Then, out of the residential sector of all places, came the sub-prime storm.
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Opportunities for 2008
Posted: Dec 29, 2007
Investing in residential land and lots is a good opportunity for patient capital. Focus on the growth markets of the future and carefully judge the supply against various absorption scenarios. The first money in this space closed deals in 2007 to allow sellers to carry-back tax losses against the last three boom years. Did these investors discount enough? Land buys are a play in 2008. Expect to be in deal for 5 years +/-.
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Real Estate Investing for Retirement, It’s The Cash Flow That Counts
Posted: Aug 01, 2006
Living comfortably in retirement is not necessarily about how much money you have, it is about your cash flow. The millionaire earning 2.5% in the bank ($25,000) is surviving, the millionaire with 5% in bonds is doing better, and the millionaire receiving 8-10% in real estate is living well. Which millionaire do you want to be?
read full article »
