Real Estate as an Investment

©2017, Sharyn L. Brunk

Is your retirement money in a fixed (low) income account? Perhaps you have thought about investing in real estate—but do you have the expertise to do that? And certainly, becoming a landlord and having to deal with finding renters or repairing tenant damage puts a real damper on the whole idea.

 

I will suggest one avenue that will give you a nice yield on your principal: buy a builder’s model home with the understanding that you will lease the model back to the builder for, typically, at least a year. There are various ways to structure the lease but the most advantageous to you, the home owner, is a triple net lease. This means you receive a fixed amount of rent each month, but the builder continues to pay HOA fees, taxes, and homeowners/ liability insurance. (You, no doubt, will want purchase additional liability insurance.) At the end of the lease, the builder restores to home to like-new condition--minor wear and tear excepted. The best triple net lease terms I have run across is an 8% triple net lease. Yes, that’s a pure 8% return on your investment! And, you should, effectively, receive an even greater return because your rental home is appreciating in value while you hold it. In addition, if you purchase with funds from your stock brokerage account, you will be saving 1% on the brokerage management fees. This should give you a total return of 15 - 20%. Remember to deduct the following from your profit: realtor fees to sell the property, any HOA reserve fund contribution that may be required upon purchase or sale, and excise tax upon sale of the property. Often, the model home is superior to other homes and there may be eager buyers waiting for it to come back on the market. Of course, you could minimize all of these charges by actually becoming a landlord and holding the property for longer than the original lease term, renting to the general public. But, oops, that’s back to the headaches!

 

Such properties are a bit difficult to locate, but I can help you here because I have a relationship with several builders. Essentially, I know which opportunities are “coming up.” I have extensive experience with such contracts. Further, some builders are approachable even though they do not realize this is a good opportunity for them. Namely, it frees up their cash to make new investments. I can supply a contract to present to the builder which will contain terms very favorable to you both.