One Stop Medical Center
We all agree that real estate investing is a cyclical creature but there are specific sections that can provide a hedge to the boom and bust cycles. In previous downward trends in the real estate market, the three types of investment properties for stability and income in good times and bad were the types of properties that fall into the categories that service food, shelter, and wellness. This time around it’s no different.
In the food category shopping centers with grocery store anchored tenants are still holding up quite well for investors, although the big box stores have made a dent on their performance in this cycle. This would make them the slowest performer out of this trio, but then again, much better than any other section of retail. By and large the restaurant section is in lots of trouble with lots of closures and are not included in the food section.
When it comes to shelter everyone has got to live somewhat and that’s what makes this my favorite type of investment. The key to Apartment house or Multifamily Properties investing is “location”. People will drive to own, but will not drive to rent so the location of the property has tremendous importance on the value of the investment. Well located properties are always in demand by tenant residents resulting in less turnover of tenants and they will also command a higher rent when available.
With the huge surge in home foreclosures over the last three years, the apartment market has become a desirable place for both investors and residents. For residents there several advantages to apartment house living. Typically there are better facilities in apartment complexes than in most single-family homes and the renter always has the option of living close to where they work or play thereby eliminating commuting costs in terms of time and auto expense. For most people it’s also a lot more cost effective to rent and live in an apartment that it is a single family residence.
For the investor, apartment houses have the advantage of numbers. A multifamily apartment complex with 100 units is technically not concerned if he has four or five units vacant at a particular time versus the investor with a retail center or an office building that has fewer tenants with larger percentages of the overall income involved in a vacancy. The apartment house investor also has a more favorable tax treatment as his depreciation schedule is 27.5 years versus the 39 years in commercial property. Another advantage here is, that in lean times, tenants can take advantage of government assisted rent programs enabling them to stay in their apartments and in some cases the landlord can get paid a little more. These among other things make multifamily apartment house investing the favorite among savvy rental property income investors.
That brings up the wellness sector. For many reasons the Medical Offices Facilities are always in demand especially where the demographics are trending toward senior. There are pros and cons with medical offices from the investor prospective. First the pros. Stable long term tenants with a steady reliable source of income. Expanded health care insurance coverage to more people will create more demand and increase the value of most medical facilities. A disadvantage or con in Medical Office is the requirement of additional parking in most markets.
Included in the wellness sector are the drug stores. These have long been the darling of the NNN lease investor and favored by many. The concern I have with these leases types are twofold. Firstly, they’re away too long and secondly, the rent adjustments are very low and will effect the value of the property for the later years of the lease. In the liquidation of an estate I recently encountered a franchise lease in the final 5 year leg of it’s 25 year life. The scheduled rent was only 30% of what was considered fair market, resulting in a huge adjustment in the price to allow for the reduce income for the 4 remaining years. Och!
This current week in our local market there has been a rather large Medical Office building deal involving 2 hospitals and 3 medical group facilities. There was also a 128 unit apartment deal right here in Orange County, CA.
If you’d like to ask a question or leave a comment, we’d welcome it and assure you we will respond.
