They Added A 6 Figure Income To Their Retirement Plan

December 16, 2023

Several months ago I was contacted by a retired couple and asked to sell their vacant commercial building. They had closed their business several months earlier and their retail building had been vacant ever since.

It was a beautiful stand alone retail space in a great location with high traffic. After closing their business they were now going to live off their retirement plan.

A funny thing happens when any building sits empty for an extended period of time. Almost immediately things start to go wrong with the property. The day you lock the doors and walk away the building starts falling apart.

You’re better off selling the property than letting it sit vacant for months and months. This building had already been vacant for 6 months so the owners were having to spend money on repairs that otherwise would not have been necessary.

Worth More If It’s Occupied

In commercial real estate the value of a property is based on the net operating income (NOI) of the property. In other words the value is based on how much income it generates after expenses not including debt service. If the property is vacant then the value is calculated by other methods. Then you compare it to similar properties and look at the replacement cost.

I explained to them that the building would be worth a lot more if we could lease it to a tenant. In fact the value would increase by around $200k.

They didn't really know if they wanted to be landlords, but their son stepped up and said he would take care of managing that property since he was already managing 2 other properties. And it's not that big of a deal to manage a property when you have the right kind of lease in place.

Commercial Properties – Longer Leases

One reason commercial properties are so much better than residential rentals is the leases are typically much longer. In the case of this property the lease was 5 years with a 5 year renewal option. It was a triple net (NNN) lease meaning the tenant is responsible for property taxes, insurance and maintenance costs. The landlord has no expenses except for any loan payments on the property.

The NNN Lease

I told the owners that if we got a tenant at the agreed upon rate, they might want to consider keeping the property. After about 2 months we had a tenant with a 5 year NNN lease with 2% annual rent increases and a 5 year renewal option.

By placing this tenant in their building the value of the property went from around $800k to at least $1 million. And the owners are now receiving $100k per year in positive cash flow! They just increased their retirement income by 6 figures and at the same time increased their net worth. And every year thereafter that income will increase. And the income increase will in turn cause the value of their property to go up.

This is the perfect illustration of financial momentum. Real estate is one of the best tools you can use to increase your financial momentum and your wealth. It's also a great way to build a retirement income with little to no taxes!

What can you do to increase your financial momentum?

1. Consider investing in real estate. There will be excellent opportunities in commercial real estate over the next 24 months.

2. Consider buying an existing business. Millions of businesses are hitting the market because of retiring baby boomers. Many of these can be bought with no cash.

3. Start reducing your credit card debt and your automobile debt.

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That's it for this time. See you next week!

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