“Property is the fruit of labor; property is desirable; is a positive good in the world. That some should be rich shows that others may become rich and, hence, is just encouragement to industry and enterprise.” – Abraham Lincoln
Investing in Commercial Real Estate Is The Proven King Of Wealth Creation
“Ninety percent of all millionaires become so through owning real estate.” – Andrew Carnegie
What they don’t want you to know is that real estate has always been the number one generator of wealth since humans turned from nomadic existence to a settled life in one place. If you study the lives of emperors, kings, queens, princes, and royalty throughout history, in addition to gold and jewels, their largest source of wealth was land. Along these lines, they didn’t start wars over stock markets in those days but almost every war in history was fought over land and religion.
Arguably, real estate has created the most millionaires in the world. Just take a look at the Forbes List of Wealthiest people in the world, even if they did not make their original fortune in real estate, they hold a large majority of their wealth in real estate. High net-worth investors (HNWI) typically allocate around 15-30% of their portfolio in commercial real estate, which provides monthly or quarterly income, and growth (appreciation) that easily outpaces inflation. Investing in commercial real estate truly pays off!
Wealth creates financial freedom and improves individuals’ options for creating a flourishing life. Increased wealth not only improves health, education, and our environment but also alleviates collective poverty through the flow of currency.
The Real Estate Business
“Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” – Marshall Field
In its essence, the real estate business is very simple to understand and implement. Foremost, you buy a piece of property, then you find a tenant, and you both agree to terms in a lease. The tenant pays you monthly rent, the property usually goes up in value (driven by rental increases, demography, neighborhood development, or land scarcity). You also have the option to invest in mortgage or financing, sell, refinance, or keep the property for the purpose of generational wealth creation.
Additionally, many jurisdictions increase the attractiveness of commercial real estate investment by awarding preferential tax breaks to encourage further development. This makes it less risky to buy and invest for beginner real estate investors, further propelling the stability and security of the real estate market.
The Benefits of Commercial Real Estate Investment
- Consistent Income – Regular Cash Flow
- Generates Wealth – Preserves Wealth
- Hard Asset – The Security Of Tangible Value
- Leverage – You Can Buy More With Borrowed Money
- A Hedge Against Inflation
- Unique Tax Advantages – Tax Efficient
- Historically Stable Asset – Slow To Rise And Slow To Fall
Commercial Real Estate Investments Create Recurring Income and Cash Flow
“Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.” – Robert Kiyosaki
In most investment strategies like stocks, IPOs, coins, precious metals, precious stones, bitcoin, etc., you are hoping to buy something that will appreciate in value to then sell for a profit.
Real estate is a tangible commodity that creates opportunities for rent and generates income. At its most basic level, real estate can be seen as land that produces crops, cattle, trees, and minerals. These natural resources are the building blocks of material existence and the basis for true value and wealth. Similarly, you can rent out your own land for a share of the production and then eventually contract it through rental contracts or leases. For example, commercial property leases vary in length, but the benefit of our strategy is that the average lease lasts ten years, with multiple renewal options for five to ten-year extensions.
Overall, long term contractual obligations create consistent income streams. You may have heard that real estate is all about “Location, Location, Location,” which is generally true, but the main attraction to commercial real estate is mainly “Cash flow! Cash flow! Cash flow!” The formula is simple: Income = Rents – Expenses. And for you, the investor, Income equals Cash Flow.
Owning commercial properties is advantageous, because of the stronger financial standing of corporate tenants, as well as the predictable income and expenses associated with long term leases, negotiated rent increases, and the Net Leases (NNN) structure. Net Leases, also known as Triple Net and NNN leases, relegate the expenses of property taxes, insurance, and maintenance to the tenants, providing investors with more certainty of projected returns.
Commercial real estate investing is not only a long-term, wealth-generating strategy, it also helps essential businesses operate and succeed. In that respect, as an innovative commercial real estate investment firm, Liberty Real Estate Fund invests in Single-Tenant Net-Lease properties, which bring in the most consistent rental cash flow, given that they are leased to quality brand name tenants with minimal property management obligations or operating expenses. While investing in single-family homes, office spaces and apartment buildings may be a good idea for a novice investor, an experienced investor knows that single-tenant rentals are more reliable and that triple net leases provide the most protection, given that the expense responsibilities are fully allocated to the tenant.
A Commercial Real Estate Income Fund Generates Wealth While it Preserves Wealth
“No other investment has had such a consistent and positive effect on the average person’s net worth as real estate ownership.” – Gary Keller
By any measure, real estate is by far the most significant source of wealth generation, encompassing more than 3.5 percent of the total global GDP output. With time, real estate values have always increased, despite price fluctuations in the market. Likewise, given the many shifts in the progressively globalized economy, rent increases, and property appreciation serve as bulwarks against inflation. Indeed, smart commercial real estate investing is key to stable wealth creation and future-proof income generation.
When investors choose stable and solid property as a means of wealth preservation, they create passive income for themselves from the appreciation of value over a longer period of time. Commercial real estate investing requires lower risk than other investments and can provide high returns, as long as investors are patient and let properties appreciate in value. Rent increases have also been growing for decades and have generated ample returns on the real estate investment.
Legacy or Estate Buildings also stand as prime examples of long term preservations of wealth that are passed on to heirs or as gifts to charities or causes. These buildings are set up to preserve the initial value of the investment and appreciate over time to create more value as physical assets.
Real Estate is a Hard Asset – It Has Tangible Value
“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, … it is about the safest investment in the world.” – Franklin D. Roosevelt
Real estate is a “hard” asset like gold, precious stones, oil, or other metals that have intrinsic value because of their physical essence or other valuable characteristics.
The “REAL” in “Real Estate” means that you can touch it, build and grow food on it, mine for precious stones and metals, drill for oil and water, manufacture goods, create, distribute, sell, and even mine Bitcoin. You can also sub-divide it, rent it, lease it, borrow against it, create interests including development, air, mineral, and water rights and any number of other multitude things you can do with physical property. In fact, the last line of the Liberty Real Estate Fund mission statement thoroughly sums up the intrinsic value of the real estate as the follows: “The portfolio generates value to individuals and businesses by providing places to live, work, eat, love, relax, worship, create and provide services to others.”
Real estate has a finite supply, which means it is in limited supply. Some locations are much more limited than others due to standards of living and demand. You can see this phenomenon in the major cities of the world. The land is such a scarce resource, that giant skyscrapers are constructed to cram as many people as possible into a very limited area. This is precisely what makes those locations extremely valuable.
Real Estate Can Be Leveraged
“Give me a lever and a place to stand and I will move the earth.” – Archimedes
Leverage in real estate investments allows you to magnify your investment, provided that it is done prudently. Commercial real estate investment companies are all different and finding one that offers you the most flexibility and leverage is truly recommended.
For example, leverage in the form of financing allows you to buy larger properties, and financing in the form of mortgages and bonds is available for most property types. Many lenders today loan up to 70-75% of the purchase price; however, the goal isn’t to always maximize leverage. With increased leverage comes higher mortgage payments, which creates a higher risk for the investment. At Liberty Real Estate Fund, we are conservative in our approach in order to minimize investment partner risk. We believe that using 55% leverage provides the best of both worlds – utilizing leverage to promote healthy returns while protecting our investors from undue risk.
In practical terms, when Liberty Real Estate Fund acquires a property for $2 million and uses the leverage of 55%, this equates to $900,000 worth in equity and $1,100,000 in borrowing. The beauty of this system is that the income produced by the property pays back the lender’s interest and pays down the principal, which adds to equity. In this particular instance, owning the property for five years (assuming a 4.5% interest rate or a 25-year fixed term) would generate up to $136,085 in equity through the payment of the mortgage principal.
The best part of this arrangement is that the tenants cover the mortgage through their rent payments. Essentially, the tenant is building your equity. Paying off the loan with minimal risk is another way that real estate investing works to grow wealth passively while you sleep. Indeed, every payment is taking you towards financial freedom, which is true liberty.
Real Estate Creates A Hedge Against Inflation
“One of the things that I like and continue to like about real estate is that it has been, and I think will continue to be, one of the more reliable inflation hedges among all the asset classes.” – Burton Malkiel, Princeton University economics professor and author of A Random Walk Down Wall Street
Real estate has traditionally been an excellent hedge against inflation because it appreciates in value over time. Over the past 500 years, the real estate trend has generally inclined toward an increase in value. Over the millennia, it has provided sustainable growth, generating excellent stores of value.
One major way real estate can increase in value is by being located in a highly desirable neighborhood. As the demand for physical land in growing cities and states increases, the supply is limited by geography. In turn, the scarcity of properties facilitates appreciation in value. As a result, commercial property leasing and sale of commercial properties in up and coming urban areas is one of the most lucrative investment opportunities.
Properties can also increase in value because the income from the property surges through rent escalations. One can also “force” appreciation by improving the state of the property, such as converting a farm to a housing subdivision or shopping center. In fact, one can improve the land’s market value just by obtaining zoning or development rights. If you do your research and due diligence, you can invest in commercial real estate that is very valuable and will only grow as businesses move in and neighborhoods gentrify.
The reason real estate builds and protects wealth from inflation is that the majority of individual larger expenses, such as a mortgage, stay fixed for a long time. Additionally, with Net Leases, the tenants themselves pay other large expenses. When you combine these factors with rent increases and property values (due to inflation), you can see how commercial estate income funds are a fantastic hedge against inflation. Additionally, by borrowing long term debt, the real estate investor pays off mortgages with dollars, yen or euros that are worth less than the money borrowed. In essence, real estate property is a protective asset against the depreciating dollar or any other currency.
Among the worst performers in the prospect of inflation are bonds – they provide regular coupon payments and the promise of principal repayment. But as inflation takes hold and the value of the dollar is reduced, so does the value of that bond’s cash stream. That is why bonds offer the least protection of any major asset class against inflation.
In fact, legendary international investor, Doug Casey, was recently interviewed on the Tom Woods Show and stated
“The Bond Market is the real problem. I wouldn’t touch a bond with a ten-foot pole, certainly not a government bond. It’s actually insane that people are buying negative interest rate bonds in Europe because bonds are a triple threat to your capital today. Why are they a triple threat? Because 1) the interest rate risk 2) the currency risk 3) the default risk. All these governments are bankrupt.”
Real Estate is Tax Efficient and Has Unique Tax Advantages
“The government grants tax and legal incentives to real estate investors to encourage them to do a job that the government can’t.” – Garrett Sutton
The United States government and most other governments around the world incentivize investment in commercial real estate and housing because they know that real estate investment creates jobs, infrastructure, and thriving communities. When there is no private investment in real estate projects or even disinvestment, communities start to falter, businesses relocate, or never start and the tax base crumbles.
Another reason why the government wants investment in commercial real estate is that it provides inducements through depreciation and deductions, which shelter income from taxation. Real estate investment not only generates wealth for the investor but also creates a ripple effect of prosperity in its surroundings by inciting the creation of businesses, jobs, reaction facilities, and housing.
Investing in Single-Tenant Net-Leased properties not only provides steady income but also typically qualifies for tax-advantaged treatment. Typical tax benefits include the ability to deduct normal operating and property expenses before taxable income. In addition, one can deduct any interest or expenses related to a mortgage on the property. Further, if the property is held for more than one year, it qualifies for the Capital Gains treatment, which is usually taxed at a lower rate.
Likewise, the tax code allows for a deduction for depreciation expenses. This depreciation builds up like a running meter and can typically offset a substantial portion of a company’s tax liability.
Commercial real estate is depreciated over 39 years. For example, when Liberty Real Estate Fund acquires a Walgreens property for $3 million, and the value allocated to the land is $600,000, this assumes a building value of $2,400,000. When this value is divided by 39, it provides the investors with a $61,538.46 depreciation expense per year.
There are other forms of depreciation, which savvy real estate operators can use in order to maximize tax benefits, such as Accelerated Depreciation and Bonus Depreciation. To ascertain which types your property can benefit from, you should have a professional Cost Segregation Study completed for the property.
There are also tax credits available to investors for the improvement of the energy efficiency of buildings as well as investment in alternative energy equipment and in certain property enclaves called Opportunity Zones.
The Self-Directed Retirement Account also provides you with the opportunity to invest in real estate.
*Liberty Real Estate Fund LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice.
Stable – Slow To Rise And Slow To Fall
“Buy land, they’re not making it anymore.” – Mark Twain
Where does one go in the world to obtain a safe haven investment in times of global economic troubles?
The stock market can swing wildly with dizzying drops from bad news, rampant speculation, or even some fanatical Tweet. However, real estate is less correlated to vast fluctuations in the market than other retail investment sectors. Additionally, the illiquid nature of real estate means that it can act as a stabilizing force for the rest of your investment portfolio.
Real estate is a safe haven in times of economic turmoil and is the safest investment during uncertain times because it produces consistent cash flow and tax advantages over other investments and opportunities. Your tenant’s brick and mortar business will always require the real estate to continue its operations, therefore he or she has every incentive to pay rent, and in turn, provide cash flow back to you. In a tech era when most businesses are operating online, office buildings and spaces housing essential services will always be producing profit as long as customers and clients keep needing them. Even if the property loses value, the cash flow will continue to pay investors regularly through tax breaks. You can simply outlast the storm and then sell and refinance during a more stable market cycle.
Liberty Real Estate Fund often invests in Single-Tenant Net-Lease (NNN) properties that house essential services and medical service providers. Some of these tenants perform financially better during economic turmoil. For example, low-cost commercial retail chains like Dollar Stores usually increase their store revenue during a recession and provide essential items at a low cost. Generationally, Baby Boomers are entering into the prime years for medical expenses increase, which inevitably expands revenue for our medical tenants. The growth in revenue will enhance the tenant’s desirability to renew their lease or even pay an increase in rent to lease the property. Given the desirability and lower cost of the single tenant net leased properties, historically, there has been a larger pool of investors looking for well-performing tenants or 1031 tax exchange buyers needed to identify replacement properties. By following and understanding social and economic trends, you can undoubtedly make better choices when it comes to the sale of commercial property, commercial property leasing, and general matters of real estate investing.
So, you may ask, “am I able to find commercial real estate listings on a platform like Zillow?” The answer is – not exactly. You can use regular internet search methods to find commercial real estate listings, but the smartest and most secure investment is one done through a realty company with actual experience investing in commercial real estate. Concordia Realty specializes in Retail Real Estate including Shopping Centers, Malls, and Single-Tenant Net-Lease Detail and Medical properties with an emphasis on value-added projects.
Is Real Estate an “Alternative” or the Natural Choice for Investing?
“I would give a thousand furlongs of sea for an acre of barren ground.” – Shakespeare
Like in every area of life, everyone has an opinion or advice on how to best invest your money. And if everyone was right, we’d all be millionaires! Banks and Wall Street are a part of the giant financial industry pushing you to “deposit” your money or “index” your funds. They even go so far as to classify every other investment, including income-producing real estate, as an “alternative investment.” But, an alternative to what? Insider trading? Non-tangible assets? Playing their game of speculation?
The result of Wall Street volatility is that the stock market becomes a lottery game, where the money is made based on speculation and not on solid financial fundamentals. On the other hand, real estate is arguably the world’s most valuable physical investment with fewest risks and countless possibilities for reinvention.
Real Estate Versus The Stock & Bond Market
Because real estate has a very low correlation to stocks and bonds, it is the perfect investment vehicle to diversify your portfolio. Historically, real estate has also had a high risk-adjusted rate of return relative to stocks and bonds. More significantly, it is an asset class that can decrease volatility and increases returns when added or in lieu of a traditional portfolio that consists of stocks and bonds. Essentially, real estate investments have the potential to offer long-term returns that are predictable and dependable.
The chart below compares commercial real estate to other publicly traded products:
You can see that investing in commercial real estate produces “above market” returns in a steady, dependable and consistent manner. In fact, real estate provides higher returns, usually with lower volatility, and has a low affinity to the fluctuations of Wall Street dealings. Consequently, many savvy investors typically choose to invest in commercial buildings over risky residential properties, given that their leases are more stable and the potential for returns on investment much higher. Your income from these investments will truly depend on how much you decide to invest, as there is a range of profitability when it comes to commercial real estate investing that is contingent on many factors, including location, the type of property, and more. Most real estate experts agree that rates above 8% make for a profitable return on investment (ROI).
If you are just starting out and have very little money to buy commercial real estate, we recommend opening a real estate investment trust, or REIT, which is one of the easiest and cheapest ways to handle and profit from commercial real estate investing. REITs work a lot like mutual funds, where a number of investors can earn profit from commercial real estate investment without buying and managing the property directly. Retail centers, hotels, and malls are some of the most popular REIT investments. And once you’re ready to buy commercial property, all that you’ve learned with REIT investing can come in handy!
One way you can invest in REITs is by opening a commercial real estate income fund, which combines current income and capital appreciation to make investments into income-producing real estate securities. Overall, choosing to invest in a real estate income fund over buying individual REITs provides greater asset selection and diversification.
Be Aware of the Risks
These are the primary benefits of real estate investment. Of course, like any investment, there are risks. The key is to buy smart, manage professionally, and not over-leverage. In fact, doing your research and due diligence will go a long way in finalizing an investment strategy that provides high rates of return with minimal risk.
Real estate investing is typically more hands-on and time-intensive than buying stocks, bonds, precious metals, or cryptocurrencies. Unlike other investment options, investing in real estate is a committed strategy that is relatively illiquid. This is because the benefits of tangibility come with the downside that it is a fixed asset that cannot be quickly liquidated. Additionally, transaction costs can be high. In essence, know the risks and mitigate them as much as possible.
Unlike publicly traded stocks and bonds, real estate investments are usually illiquid. That’s one big pro to investing in commercial real estate on the blockchain, as illiquidity is not something you have to worry about.
If you’re an adventurous investor seeking smarter investment, you must work with us at Liberty Real Estate Fund, given that we combine the ease of opening a brokerage account and the liquidity provided by digital assets.
Liberty Fund presents the world’s first single tenant net lease security token. Sign up here to be in the know of our next exclusive webinar giving you the insights into how to invest smarter with better returns.
“The best time to plant a tree was 20 years ago. The second best time is now. Time to invest is now. Don’t wait!”
– Chinese Proverb
*Note: Liberty Fund/Concordia Equity Partners (Concordia) have made every attempt to ensure the accuracy and reliability of the information provided. Concordia cannot not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained herein. The information herein considered legally-binding legal advice, tax guidance, or financial counsel.
Jason Ricks, CCIM is a Principal and the COO of Liberty Real EstateFund LLC, the World’s First Net Lease Security Token FundTM, as well as a Concordia Equity Partners principal whose primary focus is on acquisitions, leasing, and development.
Jason is a native Texan, professional real estate investor and certified commercial investment member (CCIM). Jason’s background in retail leasing and asset management make him an invaluable member of Concordia’s team for developing strategies to unlock the value of a property. Jason also has extensive experience and familiarity with south and southwestern US markets.
Jason’s most recent experience is with AMLI Residential as the Vice President for Retail Asset Management where he established and has led the mixed-used Retail Asset Management team working on premier properties worth hundreds of millions across the country. Prior to that, he served as an Asset Manager for BH Properties where he oversaw a 2.2 million square foot value-add retail portfolio throughout Texas and Oklahoma. Jason broke into the commercial real estate business as a Shopping Center broker for Tarantino Properties. He received his BS in Business Management from Oklahoma State University, where he was a Team Captain for the Oklahoma State Football Team (The Cowboys).
Jason is an active member of the International Shopping Counsel of Centers (ICSC). Most recently, he was featured in the #1 Amazon bestselling book: DESIRE, DISCIPLINE & DETERMINATION (2019).
Jason has also been featured as a guest on NPR, the Nothing But Net Show podcast, Simple Passive CashflowPodcast, and Commercial Real Estate Investing from A-Z podcast.
Michael J. Flight is a founding principal of Concordia Realty Corporation in 1990 and more recently CEO of Liberty Real Estate Fund LLC, the World’s First Net Lease Security Token FundTM, joining 30 plus years of institutional real estate investment experience with blockchain technology to deliver very stable, diversified, tax efficient returns combined with liquidity, security and transparency. The LIBERTY-RE token is a net leased property fund curated to create a conservative, safe haven portfolio of long term, Single-Tenant Net-Leased properties designed for geographic diversification, tenant credit diversification and industry diversification.
Michael is a real estate entrepreneur and Security Token evangelist who is an expert in retail real estate (Shopping Centers and Single-Tenant Net-Leased) investment, redevelopment and real estate on the blockchain. He has an extensive record of partnering with some of the world’s most well-known banks, insurance companies, hedge funds and institutional investors in many successful projects. Michael has been active in commercial real estate over the past 34 years. Michael has been featured on CNBC and CEO Magazine and these quality podcasts: The Real Estate Guys Radio Show, Cash Flow Connections, Real Estate Espresso, CashFlow Ninja, Buck Joffrey’s Wealth Formula, Family Office Club and Bitcoin.com podcasts and many more. Michael is also a well-known speaker at Global Family Office Summit Dubai, FreedomFest, Investor Summit at Sea, the Intelligent Investors Real Estate Conference, the Multifamily Investor Network Conference, the CRE Power Players Summit, the LA Blockchain Summit and the Liberland 5th Anniversary Conference. He is a published author having been recently, and was featured in the #1 Amazon bestselling book: DESIRE, DISCIPLINE & DETERMINATION (2019). He is currently finishing a book on the benefits of Single-Tenant Net-Lease (STNL) real estate investments. Michael is co-host of the Nothing But Net podcast – an educational podcast about Net Leased (“NNN”) properties and the Chicago Blockchain Real Estate Collective.
Michael has been elected to public office, also serves on the real estate investment advisory boards of two non-profits and is a founding board member for Freedom of Life, a Romanian NGO helping women achieve liberty and build new lives while recovering from human trafficking