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NET LEASE PROPERTIES VERSUS MUNI BONDS
If you are an investor looking for passive income where do you turn right now for cash flow and yield? Interest rates are so low they have gone negative on several recent issues of sovereign debt. In troubled times there is a flight to safety and you have been sold that bonds are a “safe” investment.
But are bonds, especially municipal (“Muni”) so safe? Is there a superior investment that has the characteristics of bonds yet provides better returns, has intrinsic value and is more tax efficient?
“Moody’s Investors Service has lowered its outlook to negative on all municipal bond sectors”
According to a September 4, 2020 Wall Street Journal article “Municipal bond defaults have reached their highest rate since 2011, the aftermath of the last recession, according to Municipal Market Analytics data. Still, Americans continue to pour money into municipal bond mutual funds, which are clocking 17 straight weeks of inflows since mid-May.”
And the key take away they want you to believe: “Rock-bottom yields throughout the fixed-income market have left risk-averse buyers with few different interesting choices.”
Among the worst performers in the face of inflation are bonds – they provide regular coupon payments and the promise of principal repayment. But as inflation takes hold and the value of a dollar is reduced, so is the value of that bond’s cash stream. That’s why bonds offer the least protection of any major asset class against inflation.
“The Bond Market is the real problem. I wouldn’t touch a bond with a ten-foot pole”
In fact legendary international investor Doug Casey was recently quoted on the Tom Woods Show as saying “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.”
Bonds Are Worst Performers In Times Of Inflation
Perhaps you heard the Federal Reserve announcement in August that they are targeting 2% annual inflation. On current bond yields that would wipe out the entire return. Among the worst performers in the face of inflation are bonds – they provide regular coupon payments and the promise of principal repayment. But as inflation takes hold and the value of a dollar is reduced, so is the value of that bond’s cash stream. That’s why bonds offer the least protection of any major asset class against inflation
Wall Street pushes conservative investors towards municipal bonds because of their tax treatment by the US government and supposed security. Many municipal bonds are extremely risky because of out of control public pensions, faulty revenue projections and most importantly, barely keep up with inflation or lose value due to debased money. In some recent years total returns for municipal bonds were negative. Last year a Wall Street Journal headline emphasized this fact: “New Tax Laws Drive More Americans Into Muni Bonds”.
Real Estate Has Always Been The Number One Generator Of Wealth
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 settling down and staying in one place. If you examine emperors, kings, queens, princes and royalty throughout history, in addition to gold and jewels, their largest source of wealth was land. To further the case, they don’t start wars over stock markets but almost every war in history was fought over land and religion.
Net Lease Properties Versus Muni Bonds Comparison
Still not convinced? As of this writing, the 10-year Treasury is only yielding about .67 percent. Average approximate yield to maturity that an investor can earn in today’s tax-free municipal bond market (National Averages) as of October 30, 2020* are as follow:
Average Municipal Bond Yields
|AAA: 10 Year = .85%||20 Year = 1.4%||30 Year = 1.4%|
|AA: 10 Year = 1.0%||20 Year = 1.6%||30 Year = 1.8%|
|A: 10 Year = 1.2%||20 Year = 1.8%||30 Year = 2.0%|
* Source FMSbonds, Inc. municipal bond firm tax-free and taxable municipal bond index as of October 30, 2020.
The rates above include cities, towns, counties and townships that may be growing or may be losing tax base and population. Now take a look at a few super safe, well located, strong credit Single-Tenant Net-Lease properties currently on the market.
Selected Capitalization Rates (Equity Yields)
|Whole Foods (Amazon = AA) – Santa Barbara, CA||Term: 15 Years = 4.0%|
|T-Mobile Data Center – Sunrise, FL||Term: 18 Years = 4.5%|
|7-11 (AA-) – Tyler, TX||Term: 15 Years = 4.9%|
|CVS (BB) – Salt Lake City, UT/td>||Term: 22 Years = 5.3%|
|Tesla – West Palm Beach, FL||Term: 10 Years = 5.75% (6.28% w/inc.)|
View the Tesla property video. You don’t get this with bonds:
Smart Money Is Betting On Net Leases To Replace Bonds In Their Portfolios
According to a September 11, 2020 PERE article “Real estate’s primary appeal to institutional capital since the global financial crisis has been as an alternative to fixed-income instruments. With central banks set to hold benchmark interest rates near zero for the foreseeable future, the need for reliable yields has only increased during the covid-19 era.” The current environment is ideal for triple-net lease acquisitions such as Apollo Global Management acquiring a $5.5 billion portfolio of properties in Abu Dhabi and private equity giant KKR is pursuing a similar strategy in Japan. These sophisticated institutional investors get something almost as hard to come by regular cash flowing income at above bond returns.
Commercial Real Estate Offers Tax Sheltered Income Backed by Real Assets
Income producing commercial real estate is currently creating higher yields than bonds (much higher than US Treasuries) plus some price appreciation potential without the risk associated with muni bonds. What Wall Street does not want you to focus on is that real estate provides some of the best tax breaks of any investment and will dramatically improve your after-tax yield.
Net Lease properties have long term contractual rents backed by excellent brand name companies. With net leased properties, especially investment grade, credit tenants (also known as a Credit Tenant Lease or CTL) the rental income is backed by financially secure entities and you have the value of the underlying real estate. Plus the investor has all or a portion of the income sheltered from taxes through expense, depreciation and interest deductions that can reduce taxable income. You can even get more bang for your buck with leverage. Mortgage rates are at an all time low for conservative investing
Liberty Real Estate Fund Is Bonds Wrapped In Real Estate
Liberty Real Estate Fund LLC is The World’s First Single-Tenant Net-Lease Security Token FundTM, joining blockchain technology and 30+ years of institutional real estate investment experience to deliver stable, diversified, tax efficient returns combined with liquidity, security and transparency.
Liberty is a real estate investment fund that acquires Single-Tenant Net-Leased (NNN) retail, auto service and medical properties in the United States. It is designed for investors to achieve: Geographic Diversification; Industry Diversification; Tenant Credit Strength and is built with hard assets that have intrinsic value. Our portfolio of Net Lease properties is constructed with brand name Essential Businesses operating in high growth markets throughout the United States.
*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 Flight is a founding principal of and CEO of Liberty Real Estate Fund LLC (LibertyFund.io), the World’s First Net Lease Security Token Offering. 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 who is an expert in Retail Real Estate (Shopping Centers and Single-Tenant Net-Leased) investment, leasing, operations, and redevelopment. Michael has been active in commercial real estate over the past 34 years and has handled more than $500 million worth of real estate transactions. Michael has extensive experience in development, leasing, sales, property management, and innovative financing techniques.
Michael has been featured on The Real Estate Guys Radio Show, Cash Flow Connections podcast, the Real Estate Espresso podcast, the Kingdom Capitalist podcast, and Buck Joffrey’s Wealth Formula podcasts to name a few. Michael is also a well-known speaker at FreedomFest, Investor Summit at Sea, the Intelligent Investors Real Estate Conference, the Multifamily Investor Network Conference, and the Liberland 5th Anniversary Conference. He is currently finishing a book on the benefits of Single-Tenant Net-Lease (STNL) real estate investments.
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