Finance Solutions to the Rescue.
Desperate times calls for creative measures when it comes to financing home building projects.

Builders desperate for new sources of capital are turning to new kinds of private investment sources. Pensco Trus Co., chartered in New Hampshire and headquatered in San Fransisco, is one company making this opportunity work for builders.
Pensco administers more then $3.3 billion in retirement assets. “We can’t directley promote any particular investment,” says CEO Tom Anderson, “but we link to Web sites where builders can post information about projects. Two new portals have just launched within the last 60 days: www.nationalalt.com and www.iravestor,org.”
“Our clients can invest in anything except life insurance, collectibles and the stock of subchapter S companies.” Anderson says. “Everything elese is free game, including real-estate. They can extend loans to builders or do join ventures to share in teh proficts from a project.”

MetLife Joins Mortgage Lending
Early last fall. MetLife acquired First Horizon’s mortgage business and converted it into MEtLfie Home Loans, now headquatrted in Dallas. “We’re part of MetLife Bank, whick is out of Bridgewater, N.J.,” says Senior Vice President Dan Schmidt, who runs the national builder division. That division is already creating new programs, such as rate buy-downs, to help builders sell houses.
“We just rolled out a new offering of jumbo loans,”Schmidt says. “MetLife is in a great position because there’s nothing in its portfolio that’s toxi –no sub prime mortgages or construction loans on failed projects.
Check out www.metlifehomeloans.com

Net-leased real estate getting closer looks.

December 18, 2008
by Robert Mathers, CPA, PFS and Edward Coyle

As more and more investors become frustrated with seeing their stock and bond portfolio values plummet and suffer the daily angst of triple digit swings on Wall Street, there is a renewed interest in conservative Alternative Investments. Alternative investments, generally speaking, are investments that are considered outside of the traditional asset classes of stocks, bonds and cash. Examples of alternative investments include real estate, commodities, options and financial derivatives. Alternative investments are often used by hedge funds. One of the old tried-and-true alternatives is bricks and mortar, i.e. real estate. Of the entire spectrum of real estate investments available for purchase there is a property type that has been overlooked by most high-net-worth (HNW) individuals — Net Leased properties.

Net-Leased Real Estate

What is net-leased real estate? These are individual properties that are leased, for the most part, by credit tenants on long-term leases of 10 years to 25 years. The term “net leased” means that the tenant is responsible for all operating expenses — real estate taxes, building insurance, utilities and building and ground maintenance. In other words, the investor has little, if any, management responsibilities, always problematic for an individual without the time or inclination to deal with tenants or maintenance issues.

For whom is leased rental real estate suitable? Many alternative investment classes are suitable for ordinary investors. However, due to illiquidity, high risk or other factors many alternative investments are reserved only for “Qualified Purchasers”, or those with at least $5M to invest. Other investments may be reserved only for “Accredited Investors,” or those with $1M net-worth or income greater than $200,000.

Net leased real estate may be a sensible way of diversifying an investment portfolio and can not only minimize exposure to risk but is also a strategy to generate constant, stable and predictable monthly/annual income with added tax benefits potentially derived from depreciation and interest expense deductions. Note that the investors must contact his/her tax advisor for the determination of whether the passive activity loss rules may apply.

Types of Net Leases

Not all net leases are the same so here is a quick tutorial. Absolute and Triple Net are terms that refer to the tenant paying all costs of the lease including the building structure, roof and parking lot replacement. This is in addition to taxes, insurance and common area maintenance (CAM). Double Net has the owner/landlord ultimately responsible for the roof, structure and parking lot replacement. The term net lease can have varying meanings and a close reading of the lease will determine who is responsible for what.

Investment real estate values are expressed in terms of Capitalization Rates commonly referred to as “Cap Rates”. By definition, a Capitalization Rate is “any divisor (usually expressed as a percentage) used to convert anticipated economic benefits of a single period into value.” Many times, this divisor is computed by accumulating differentials of risk associated with the stream of economic benefits being analyzed. Generally speaking, with respect to the economic benefit stream of a real estate investment, a pretax cap rate is the Net Operating Income (NOI, net income less all expenses before debt service), divided by the purchase price. Or conversely, the NOI divided by the cap rate will be the purchase or selling price. Cap rates, associated with a real estate investment are a measure of several determining factors:

a. the credit rating of the tenant;

b terms of the lease such as triple-, double- or single-net, length of the lease tenure, increases in rent during initial term;

c. cost of financing;

d. location;

e. age of property;

f. condition of property upon purchase; and

g. long-term viability of location and building.

A property with strong measures of the above will trade (sell) for a low relative cap rate reflecting the strength of the overall investment, the higher the cap rate the greater the risk.

The good news for anyone looking to purchase a net lease property at this time is that cap rates are rising making it more affordable for those looking to make a purchase in the near future. Re-pricing is happening across the board as lenders tighten equity requirements (30% is not unusual) meaning there are fewer qualified buyers for properties thus more properties available. For example, a brand new Walgreen’s location that was selling for a six-percent cap nine months to 12 months ago can now be bought for a 6.85 percent to 7.15 percent cap. The higher the cap rate, the lower the valuation.

Conclusion

There are dozens of net-leased properties available at any one time and most are brand new construction with fresh long-term leases. They are available all over the U.S. A qualified, seasoned commercial real estate professional who will represent a buyer’s interest should be consulted when searching for a property that meets an investor’s goals and needs. There have been many millionaires made in real estate. If suitable for the investor, the asset class can add stability and income in a volatile market.

     The economic bombshells have stopped most of their down pouring and the air is starting to clear. What appears to be left amidst the rubble are disenchanted 401(k) participants who are hesitant or complete ceasing to continue the contributions to their 401(k) plans as schedule. Does this trend indicate the beginning of a vanishing of the traditional 401(k) plans as we know them?

     Back in 2002, unknowingly, a downward decline in 401(k) participation began. It would be some five years later before that trend would change and the number of participants would take an upward turn. The Employee Benefit Research Institute studied these trends, taking notice of the fact that part of the decrease was due, in no small mention, to the fact that younger employees replacing older ones were simply not as likely to participate in 401(k), if they participated at all. This accounted for a significant portion of the multi-year slide but not all. The other more signification percentage was still attributed to the older employees who made up approximately 55% of participation members.

     A pending recession wouldn’t scare away many 401(k) participants early on in the game. But more challenges would come. Challenges such as the huge Enron scandal. Many participants were blown away that such a large corporation was being run by individuals would take both public and private funds and squander them out of the company and into overseas accounts, leaving many employees without so much as a penny for their pensions.

     As dreadfully unreal as it seemed, the Enron scandal could not be denied. Many people literally and actually took their money out of their 401(k) accounts and ran with it. It seemed safer and a wiser choice than to risk have to experience their own personal Enron scandal. Dishonest stock dealings impacted Martha Stewart in a similar manner, causing K-Mart to withdraw her line from their shelves and landing Martha Stewart in a jail cell to cool her heels.

     Another factor inciting many to drop their 401(k) participation has been the changing role employers have started to take on matching contributions. Many companies, including large one like General Motors, are searching for ways to cut back the traditional matching contribution that has kept many participants on board. Without this matching contribution, many participants are losing faith in 401(k) and are considering other options for retirement such as an IRA or more specifically a self directed IRA LLC which allows for complete control of one’s finances and investment choices.

     These fatal blows to the reliability of many 401(k) programs were quite enough to cause program administrators cause for worry. But there were not alone. The 9/11 terrorists attacks brought buildings, lives and yes, 401(k) and profit sharing accounts crumbling to the ground. Suddenly many lives were lost, many prominent important buildings were reduced to rubble, and thousands of American casualties, including deaths, resulted.

     The question of living for today because no one know what tomorrow will bring was answered and the resounding answer for many was to live for today. For saving for a retirement that may never come ceased to be the fashionable thing to do. Especially if you could take the same amount of money, buy a house, refinish it or flip it and sell and avoid the 401(k) risk scenario all together. Who wouldn’t go for real estate rather than 401(k)?

     By 2006, The Pension Protection Act allowed for many employers to get into the fight to save the vanishing 401(k). The act made provision for automatically enrolling new employees in 401(k) programs. This act was designed to help offset the continued decrease in participation that these companies have been witnessing for years now. Although it is anticipated that 401(k) will continue to decrease by an estimated 2 percent over the next year, it is believe that this decrease will be offset by the 2 percent increase that auto enrollments will generate.

     What does this all mean for 401(k)? It means the trends have changed and are continuing to change. It suggests that if you have a 401(k) and it has less than $70,000 in it, that’s normal and you shouldn’t be worried about increasing it exponentially with the number of years you’ve had the account. There’s also an indicate that you should watch your employer carefully over the next couple of years to see what’s going to be done with your 401(k) in terms of the matching funds they contribute. You may find your 401(k) takes a back seat and slows way down in growth terms.

     Does this mean that 401(k) is vanishing completely? There are no signs to indicate that 401(k) won’t be around for the long haul. So if you’re comfortable with the volatility that can happen, you should be secure enough to ride the storm out and see what the outcome will be for your investment.

     If you don’t like the potential for your money to go asta la bye bye in a moment’s notice or should we say a crude executive’s overseas account, you may want to consider diversifying your retirement options with other ways to save for retiring than just a 401(k). A financial planner is a good place to start where you can just discuss your concerns and fears and learn some more information about what other options you have available.

     Whatever your choice may be, don’t do anything hasty or regrettable because it’s your money and you’ve taken some time to get it built up.