Mike’s Real Estate Show

The Benefits Of Investing In Out Of Area Properties Most of us are aware that returns on commercial investment properties in the San Francisco Bay area are among th very worst in the country. Last year, San Francisco apartments fetched an average cap rate of 4.4%. Shopping centers and retail properties fared somewhat better, normally trading at cap rates between 5.5% and 6.5%. Still when you can put your money in government securities and bank paper investments for not a whole lot less than that, many investors hav elected not to take the risk for such low returns. Still, the fact remains that real estate over time has made more millionaires and multi-millionaires than any other investment vehicle. Investing in real estate is a good decision. The smarter investors have been going out of the Bay Area, and have increasingly elected to go out of state for better returns. After all, if you can buy a freestanding Starbuck’s in downtown San Francisco at a 5% cap, and can buy a freestanding Starbuck’s somewhere in the Midwest or the Southwest for a 6.5% cap, how much sense does it make to buy the one in San Francisco? You get a 25% better return on the out of state investment. That’s a financial “no-brainer”. Most people are reluctant to invest out of state because they don’t want to travel somewhere far away every time something happens with one of their properties. They also want to keep an eye on their investments. That’s where triple net single tenant investments come in. If you lease to Starbuck’s (for instance), you have a national credit tenant on the hook for the rent. So, you know you are going to get paid. If the lease has been negotiated well on the landlord side, they have the obligation to maintain and repair any non-structural items in the premises. With a newer property, structural problems are very unlikely to occur any time soon, so you are not likely to have visit the property with any kind of frequency. Still, let’s say that you want to visit the property 2 to 4 times a year. A flight to anywhere in the continental U.S. should be under $500, and a night in a good hotel should be no more than $200. That’s less than $3,000 per year even if you go four times a year. Plus, your trips are tax deductible, so it’s even less. Those expenses simply pale in comparison to the increased investment returns that you will receive.