I have been doing some trust deed investing the last few years and it has worked out very well. Most of the loans I have made have paid out at 12%, which sure beats CDs.
So why hold RE? What I am concerned about in debt investing is the long term capital erosion due to inflation. In theory, RE should ride with inflation. RE also can produce an extra capital gain from leverage, but I don’t count that since my RE investing is not financed. My goal at this point in my investing career is income from my assets. And commerical RE looks good to me for that.
Posted by Dick Gould on November 06, 2004 at 13:05:38:
I have invested in income properties,(mostly apartment buildings) for 29 years. I am currently “retired” and I am tired of “tenants, toilets & trash.” I have decided to sell the three buildings that I currently own and am looking for replacement properties that qualify for 1031 exchange and have little or no management requirements. My goal is to diversify into three different investments so I am looking into single tenant NNN properties and TIC’s. What can you tell me about TIC’s and how would I go about evaluating a TIC investment?
If you look at the history of real estate investing, TIC’s are just repackaged syndications from the 80’s and poor investments. There may be some marginal ones out there, but mostly the TIC sponsor is getting fat.
The TIC’s I have analyzed are paying 5.50-6.25% cap rates and expecting to be able to sell at that level in 5-10 years. Another route they try and sell is their “master lease” with hardly any backing or liability for non-performance.
You are better off seeking out your own 1031’s and steering clear of TIC’s, they are the next S&L debacle.
As with any investment option, there are risks and rewards and positives and negatives. Here is some information regarding TIC investments: http://www.diversifiedexchange.com/articles_tic_interes
ts.asp. I would contact a number of the TIC Brokers linked from this web page and “kick the tires” so to speak. I would also be happy to discuss the issues with you. I run a Qualified Intermediary company, so we see it from both sides and are not biased either way.
It is easy to find the companies that sponser such deals, just google “TIC 1031”. The big ones are Tripple Net Properties, Pasco, Evergreen.
Be VERY careful. I am in the same situation as you and looked into the TIC programs. I visited their offices and met with their CEO and buyers, and studied their offerings. They looked very good at first. But as I considered the ramifications, I concluded that they are real dogs. I biggest problem that I see is that all the ones I saw, only have 5 year or so, financing. This could be a real time bomb. If rates are down and FMVs are up five years out, then everything is OK. But if rates are up and therefore FMVs are down there could be hell to pay. In fact I would expect that it rates are up 2% in five years, the these deals would be pretty much a total wipe out.
What I have decided to do instead, is sell my apartment buildings and 1031 into multi tenant professional office buildings.
I have also been looking to 1031 apts to something else. My concern with office buildings is that corporations are cutting costs. With the advance of computing technologies, “virtual offices” are the trend, with a virtual office of course being a desk and high speed modem in your house. That is why I like retail commercial more than office space. Have you thought of that?
yes, Randy, i think time will tell this is a good move. NNN, or put your properties into full management (i would hate to do that). you can also diversify into some lending.
What I have been looking at are professional offices. Doctors, lawyers, brokers, are always going to need offices. You really can not impress clients and impress them in a spare bedroom. I have thought about retail but it scares me. It seems that most independent retail business are pretty marginal, and I would worry that there would be about the same kind of turn over that there is in low income apartments. But I really have no experence in this other than just noticing what is going on in the store fronts around town.
To see the kind of deal that I find interesting go to Loopnet and seach AZ offices and look at Fountainview Place. It clames a 11%+ cap rate (wow!) and I could do it with about a 20% LTV which would afford a great deal of safety. And it sure looks a heck of a lot easier to run than my apartment buildings. I sure hope there are deals like this out there when it comes time for me to make the 1031 switch.