Why Should I Buy Debt-Free Income Properties?

Does it make any sense to buy debt-free income properties? It makes all the sense in the world if you have the cash! It takes away all the “smoke and mirrors.” There are no up-front fees, no long term liability and cash is always king – you get the best deals, especially in markets like we are currently experiencing. What you get is an investment that offers safety, backed by real estate, income, tax benefits and capital appreciation.

For years, insurance companies and savvy investors have purchased income properties for cash in order to maximize income and minimize risk. What it does is eliminate the expense of debt service and all the up-front fees, restrictions and requirements lenders place on the borrowers, risk of foreclosure, and you end up with a predictable cash flow.

What are the best properties to look at? AAA Single Tenants with Triple-Net Leases in which the tenants are paying for the real estate taxes, insurance, maintenance and utilities, with ideally terms of 10 to 15 years with options to renew and rent increases. You receive a check at the end of the month with no hassles. These could be properties with long term State or Federal Government Leases. They could be Fortune 500 or 1,000 Companies. Managed Commercial Multi-Tenant Properties with CAM (common area maintenance) charges which often times include all the operating expenses to the owner like real estate taxes, insurance, maintenance including lawn care and snow removal, utilities and management. These properties often times have shorter term leases and require more management, but if you are hiring it done, you get a check at the end of the month. Other types of properties that work are Triple-Net Leased Restaurants or Bars, Managed Motels and Hotels and Managed Residential Income Properties (apartments or apartment complex’s).

Rate of returns on these properties (capitalization rate) can range from 7% to 10% and higher. Where else can you invest your money to give you low volatility, consistent performance, minimized risk backed by real property, parcel tax shelter from depreciation, predictable cash flow with profits taxed at capital gains rates, and a long term chance for capital appreciation. Pretty tough to find other investment vehicles that can compete with the benefits of debt-free income producing real estate!

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