The wise investor is always looking for good opportunities and different ways to protect their assets. In moments where global economies go, at the same time, on a complete stop is when having a good array of investments can save you. While I’m not the biggest fan of massive diversification, some of them are, actually, beneficial. And investing in triple net leases can be your safeguard for the next economic breakdown.
How do you make money investing
When you invest, you have, basically, two ways of making money: 1) cash flow coming from dividends, rents, distributions; and 2) the upside on the value of the invested asset: you bought it for $2 and sold it for $3, you’ve made a 50% profit.
Having a combination of both is important when building your portfolio. While one of them will give you a lot of joy when you sell it, the other will provide you with a passive income to pay your bills or accumulate and make new investments. Right now, we will focus on the second rather than the first.
Passive income with real estate properties
The concept of “passive income” is making money while you don’t have to work for it. Stocks can be a good source of passive income: you will buy them once and make money on the dividends every time there’s a payout. On real estate, it’s the same: you buy the property and collect rent. Buy, we all know that renting a property you own doesn’t comply with the “not having to work” part of passive income. There IS a lot of work.
If you buy a residential property or even a commercial property with regular rent conditions, you will be responsible for managing it (unless you hire someone to do that). A good friend of mine said that owning a property management company is like running a complaint center. You won’t have a call to tell how good you are doing. Rather than that, the subjects often are plumbing issues, electrical problems, infestations, and, sometimes, worse.
If you decide to salve the money - having a professional company to manage your property can cost you between 10-25% of your gross rent, you will need to dedicate a fair amount of time to keep your tenants happy and guaranteeing that they will renew their rent. Even so, you will have to face a problem: default.
I already wrote an article showing how Section 8 properties can save you on that. But, even so, you have the risk that your tenant leaves, looses his/her qualification for the program, or, worst-case scenario, the government decides to end the rent assistance.
So, what to do?
Walmart Wants You
Even though the Triple Net Lease is not exclusive for big corporations, we will be focusing on them for one good reason: we want to reduce your risk of not getting paid.
Companies need to extract the best of their investments. For example, Walmart makes money by buying and selling an infinite selection of products, including sporting goods, home goods, and food. It is not in the company's best interest to allocate millions of dollars in Real Estate properties because this would reduce their purchasing power, lower their margins, and, as a result, reduce their profits. So, what they do? They rather rent than buy the buildings where they decide to set their operations. And there is where you enter.