Some investors who focus solely on the stock market don’t realize that there are great real estate investments out there that outperform the market in times of economic uncertainty. When there is a downturn in the economy, investors tend to hunker down and get more liquid. They put their money in low yield investments like certificates of deposit, bonds and money market certificates. These investments pay a return of less than 2%.
Another alternative, rather than put your money in low-yielding liquid assets, would be to consider investing in real estate properties that perform well in good times and perform even better in bad times. Property owners who lease to discount retailers like Dollar Tree, Family Dollar, Dollar General, O’Reilly Auto Parts and many others provide greater returns during times of economic uncertainty for the following reasons:
1) Properties leased to national credit tenants tend to yield around 5% cash-on-cash return. National credit tenants are generally Fortune 500 companies that have plenty of cash. Many discount retailers are national credit tenants.
2) Properties leased to discount retailers tend to have double-net (NN) or triple-net (NNN) leases which means the tenant pays most or all of the operating and maintenance expenses.
3) Properties leased to discount retailers enjoy an additional 4%-to-5% return on equity because the tenant provides the cash to pay down the principal on the mortgage.
If you’re an investor who is tired of the volatility in the stock market, rather than keeping your investment capital on the sidelines waiting for a better investment climate, consider investing in real estate properties that are leased to discount retailers. These investments are especially good for self-directed retirement accounts. They pay returns of 10%-to-15% and provide a safe haven for long-term growth.
