Understanding Different Types of Leases from Brian Fielding

Oct 7, 2014 by

When considering investing in commercial real estate, Brian Fielding of Fielding Investments and Fielding Companies knows that there are many things to consider. One of the biggest factors of a great commercial real estate investment is the type of lease that tenants will sign. Here, this commercial real estate advisor gives a quick overview of the four most common types of leases: Gross Lease, Single-Net Lease, Double-Net Lease and Triple-Net Lease. He gives some bullet points about what each lease and how it can benefit you, the investor.

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Q and A: Brian Fielding Discusses Short-Term Financing and “Flipping” Assets

Sep 12, 2014 by

Hello Mr. F.

My wife and I have been doing some diligence on commercial real estate investment and found one site online that suggested that most investors buy net leased properties with short term financing and then “flip” those assets as the loan matures. We have really enjoyed reading your stories and blog and see no reference to that sort of investing. Is there a reason you haven’t written about this sort of investment strategy? I hope you can answer our question … we are getting very excited about venturing into real estate investing.

Mr. and Mrs. Robert S – Biloxi, Miss.

 

Dear Mr. and Mrs. S,

Your question is one that has been coming across my desk very recently and I appreciate your writing me.

There are persons who make money in a great many ways and there certainly are those persons who can “time a market” … buying low and selling high, but for every success we believe there is a less spoken story of failure. That is not to suggest that buying an investment with a relatively short term mortgage is a bad practice, but we avoid doing so because there are too many variables that would concern us in a relatively short “hold” of an investment.

First there is the obvious … the concern that the property that pretty much needs to be sold could hit the market at the wrong time. In the past ten years we have seen some dramatic shifts in the economy in general and in some cases to an even greater extent in the commercial real estate pricing. If you are lucky, or perhaps really prescient, you might buy a property at its nadir and sell at the height of the market. But if you time it incorrectly, you could face a severe economic loss – forced to sell a few months or years before the market fully rebounds.

The second is a tad less obvious, but of equal concern. With lenders currently required to pay out almost nothing on savings deposits, they are currently motivated to lend at remarkably low rates. But if the economy continues to rebound and the Fed starts to tighten money supply, the rate to refinance a new mortgage can rise sharply and whether it is you, or your potential buyer, that will need financing, the full cost to own your investment will be substantially higher. The net return you [or the acquirer] is often net of mortgage costs, so if rates move higher, the net income will be reduced [or disappear entirely].

In short, we believe in a strategy of acquiring solid properties with longer term leases and finance our holdings for long term appreciation, not for sale within a shorter timeframe. It does work well for some, but we feel it to be higher risk than we would want to suggest for the new investor.

Hope this helps.

Best Regards,

Brian F.

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Q and A: Capitalization Rates and Property Investment Discussed by Brian Fielding

Aug 26, 2014 by

Dear Mr. F.

Everything that I read about buying and owning commercial real estate references “Cap Rate.” What is “cap rate” and what is its importance to the investor?

 

Dear Dean,

Thanks for writing me and for authoring such a good question. The actual term is capitalization rate but mostly everyone uses the abbreviation. It is a standardized valuation method using the ratio of Net income to selling price. By way of example, consider an investment that is netting [after all expenses] $10,000 and is available for sale at $200,000. A prospective investor would calculate the property by dividing the net return [$20,000] by the sales price [$200,000] and compute that the prospective cap rate is 5%!

Cap rate is a simple tool to measure return and to compare properties against each other. Generally the difference in cap rate between similar properties will be explained by differing inherent risk of the tenancies and the term remaining on the underlying leases.

As an investor, you can use Cap Rate to compare your intended acquisition to others that have occurred in that market. You can also follow trends within that marketplace, perhaps giving you a sense of where investment properties are headed in the future.

A quick warning, however … cap rate is best when used for comparing consistent cash flow and is thus highly emphasized in offerings such as net leased investments and rarely used where rents fluctuate greatly and there is a high risk for tenant turnover.

I hope this helps get you started. Please let us know how your efforts to become financially independent progress.

 

Brian Fielding

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Brian Fielding Discusses the Popularity of Net-Leased Properties

Jul 25, 2014 by

Brian Fielding, a leader in the industry of commercial, retail, office and  industrial property management shares that over the past several years, there has been a significant growth in investor’s desire for net leased properties across the United States. Having managed properties from coast to coast including properties in Texas, Connecticut, New Jersey, Mississippi and New York, Mr. Fielding finds that balancing his personal and client portfolio with net-leased properties has balanced the risk and return in a highly satisfactory way.

 

So what is a net-leased property? A net-leased property is one that has already been developed by others and sold to investors such as Mr. Fielding.  While there is a wide range of offerings, most net investments limit the day-to-day management responsibilities of the Landlord, depending upon the form of the lease. He explained that investors who have interest in assets that are not proximate to their offices often choose absolute net [also known as NNN] or primarily net alternatives … the former placing responsibility for every element of the property onto the tenant.

 

These properties are so popular, in part, because they are easily financed and provide a reliable return with the assurance of the creditworthiness of the tenant. Brian Fielding shares that the market for net-leased properties has withstood most of the negative and crushing effects that the recession had on other markets and that demand still exceeds supply, particularly for highly credited tenancies.

 

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