Steppingstone Four: Mailbox Money
If you have been following this series, thank you! This is the fourth and final article in the series and I am glad that you have stuck with it through the series! In the event that one of my investor clients does finally decide it is time to move to the nirvana of real estate investment I like to call “Mailbox Money”, or truly passive income, they typically are talking about selling their apartment property from steppingstone three and purchasing one or multiple absolute NNN (triple net) leased investment properties with national credit tenants who are responsible for all aspects of maintaining and operating their building that they lease from the owner. The owner of the property has essentially no liability to maintain the building or make capital improvements while the tenant’s leases are in effect. There is minimal property management required on these types of properties. The tenant pays all expenses related to the building directly, including the taxes and insurance. So as an investor, you invest your down payment and you have a tenant that is locked into a lease for 5-10 years and sometimes as long as 25 years. They pay you a set amount that increases 2-4% per year according to the lease (some don’t have annual increases, but instead have larger increases every 5 or 10 years, but the result is the same—your income earned keeps up with inflation in normal inflation years). These types of investments are super attractive as investors age and want to have reliable income streams without surprises or frequent phone calls.
If you were to sell your $35 million dollar apartment building that is now worth $45 million after owning it for 8 or 10 years (see steppingstone number three), and you have $25 million in equity, you might opt to buy five 40,000 sf NNN leased investment properties that cost $10 million dollars with $5 million down on each one and interest at 6% for 20 years. The leases might bring in $25 per square foot to you each year ($1,000,000 per year each). Each one of those might net you a little less than $50,000 per month after debt service. That means you could be netting nearly $250,000 per month, with zero effort, for the remaining term of the lease. Often investors who are reaching their golden years look at this and say, even if the building goes vacant at the end of the lease, I will either be so old and rich from collecting the rent for the past 15 years that I won’t care, or I will be dead! The reality is, most of these leases get renewed at even higher rents and the wealth becomes generational and it can alter the course of your family’s legacy for multiple generations in the future.
Sometimes when an investor gets a late start in the investment game, they might skip steppingstone number three altogether and move from two to four because they want to simplify their portfolio for their heirs to deal with after they pass, or they may just want to play more golf and worry less about which apartments are getting rented and why the tenant in unit 304-B didn’t pay this month. However you get to steppingstone number 4, it is a very nice place to wind up. I hope to see you there someday!
Click the photo to see one of my current listings which can be sold as a NNN investment with a 6.7+/- Cap Rate and a seller carried financing option.
This is the tried and true path that I have helped multiple investor clients follow over my career. If you are wondering why you haven’t been able to get to the starting line, or why you stalled out on steppingstone one, or if this is the right time to move from three to four—you need to give me a call and let’s take a look at your goals, your current scenario, and where you want to be, and your timeline to get there. I am confident that the shifting market we are entering now, is going to bring about excellent opportunities for those who have the right timeline and investment horizon through which they can view the possibilities. There will be a lot of money made by those who are ready and willing to act when the opportunity arises, just like there was in the last market shift.
Don’t let your limiting beliefs about the market, your skills, or your financial situation keep you from starting the conversation today. Call me at (208) 344-6275 or email me at firstname.lastname@example.org.