By: Groshan Fabiola
The Dubai real estate market has experienced tremendous growth over recent years, and this is all the more notable considering that the traditional real estate fundamentals are not what this particular market operates on. Many people are therefore wondering about the explanation for the bust that the Dubai real estate market is set for. Population growth may be a sound explanation, considering that Dubai’s population is about three or four times bigger than that of other developing countries all over the world. The capital appreciation in the Dubai real estate market could also be justified by the high yields that investors achieved, both for short-term and long-term rentals.
Many investors are attracted by the opportunities that the Dubai real estate market provides. Shortstay renting is probably the most profitable way of producing money from Dubai real estate, because the rather high average rates that Dubai hotels charge per night have determined tourists to start looking for other options, such as a Dubai apartment or villa.
Probably the best thing about the Dubai real estate market is that there is no tax on property transactions. In fact only the ones subjected to taxes are the oil industry, the banking sector, and the cigarette manufacturers. Under these circumstances, it’s only understandable why many investors want to have their own share of Dubai property.
Being the owner of Dubai property comes with a series of advantages, such as being able to apply for residency. Furthermore, foreigners who want to purchase Dubai property are not required to have a bank account in this emirate. The transaction itself is far from being complicated, but you should definitely consider seeking legal counsel before the transaction, and legal representation during it, given the vague nature of Dubai property transactions.
Dubai property prices have been increasing considerably over the past few years, since 2002, to be more precise, when foreigners were allowed to purchase properties in this emirate. The reason for this appreciable increase was the intense demand that the Dubai real estate market has been experiencing. However, Dubai real estate can still be profitable, provided that investors know exactly what to invest in and what to do with that piece of property. Different people are interested in different types of real estate, and understanding the market from this point of view is one sure step towards success. For instance, completed apartments and family villas are in high demand for long-term rental.
All in all, long-term profit form the Dubai real estate market is possible, but it comes with certain conditions. Although this market is hardly similar to traditional and more conventional real estate markets, there is one aspect that is true for all real estate markets alike, including the Dubai one: profit from property purchase requires thorough research prior to the actual investment. Those interested in purchasing Dubai property will definitely benefit from using the information available online about the Dubai real estate market.
Showing posts with label guides. Show all posts
Showing posts with label guides. Show all posts
Tuesday, December 11, 2007
The Real Estate Investment With The Features Of A Corporate Bond
By: Groshan Fabiola
Why are so many investors, foreign and domestic, placing their money in NNN properties?
Net-leased real estate provides a unique investment opportunity to individuals or institutions interested in owning real estate without the hassles of management and leasing typically found in conventional real estate investments. Net-leased projects are most commonly single-tenant, credit-driven investments on long-term leases which require minimal or no landlord responsibility.
As a result, investors are not bound to their geographic markets, whereas they would most likely be with a traditional real estate investment, not just closely watched “backyard” opportunities.
A net-leased (NNN) property is effectively a long-term bond of a corporation in the form of a lease document encompassed by real estate. The investment appears to be a bond-type investment due to the “coupon-clipper” type of returns, 6%-10%. However, they also provide the added benefits of tax reduction and property appreciation found in conventional real estate.
The net-leased investment can be categorized three ways:
1. Retail refers to big-box users (i.e. discount variety stores, department stores, or home improvement stores) as well as small-box users (i.e. restaurants or drug stores).
2. Industrial includes facilities used for either distribution, manufacturing, or research and development.
3. Office refers to any single user such as an oil company or pharmaceutical firm occupying a facility as the sole tenant.
Pricing on net-leased projects is based primarily on the tenant’s credit, the terms of the lease, and the location. Although each of these variables has an important role in the pricing of net-leased projects, it is the combination of all three that will determine a true purchase price.
Tenant’s Credit
* Many net-leased projects are based solely on a tenant’s credit.
* Tenants considered investment grade by a recognized rating agency usually trade at a premium (i.e. Walmart, Walgreens, General Motors).
* Tenants with junk bond (non-investment grade) ratings or minimal net worth typically trade for a higher return (i.e. UA Theaters, Dairy Mart convenience stores, Taco Cabana restaurants).
Lease
* Length of a lease is a another primary factor in determining the sales price on a net-leased investment. Primary terms of 15 or more years are preferred; 10 years is sufficient in 1031 tax-deferred exchanges and similar cases
* “Absolute” triple-net leases, where the tenant is responsible for roof, structure, and parking, trade at a premium.
* “Double-net (NN)” leases, where the landlord is responsible for roof and structure, trade at a higher yield and usually include a reserve taken for any potential repairs.
* Leases with “bumps”- rental increases or upside trade at a premium, with the exception of flat leases with investment grade credit.
Location
* NNN leases are credit-driven, causing location to be the least important factor.
* Investors often pay an added premium for the residual benefit of specifying a certain geographic location.
The combination of credit, lease and location can lead to paying a higher premium (i.e. Walgreen: 20 year NNN, flat) or receiving a higher yield (i.e. CSK Auto: 15 year NN).
The market for net-leased real estate investments is strong. The availability of attractive financing combined with minimal landlord responsibilities create highly desirable opportunities, especially for investors desiring a property for an IRS Section 1031 tax-deferred exchange.
Whether a risk-averse individual or institution is in need of a smart depreciation vehicle or a relatively safe “coupon-clipper,” net-leased properties provide great investments in both credit and real estate markets.
Why are so many investors, foreign and domestic, placing their money in NNN properties?
Net-leased real estate provides a unique investment opportunity to individuals or institutions interested in owning real estate without the hassles of management and leasing typically found in conventional real estate investments. Net-leased projects are most commonly single-tenant, credit-driven investments on long-term leases which require minimal or no landlord responsibility.
As a result, investors are not bound to their geographic markets, whereas they would most likely be with a traditional real estate investment, not just closely watched “backyard” opportunities.
A net-leased (NNN) property is effectively a long-term bond of a corporation in the form of a lease document encompassed by real estate. The investment appears to be a bond-type investment due to the “coupon-clipper” type of returns, 6%-10%. However, they also provide the added benefits of tax reduction and property appreciation found in conventional real estate.
The net-leased investment can be categorized three ways:
1. Retail refers to big-box users (i.e. discount variety stores, department stores, or home improvement stores) as well as small-box users (i.e. restaurants or drug stores).
2. Industrial includes facilities used for either distribution, manufacturing, or research and development.
3. Office refers to any single user such as an oil company or pharmaceutical firm occupying a facility as the sole tenant.
Pricing on net-leased projects is based primarily on the tenant’s credit, the terms of the lease, and the location. Although each of these variables has an important role in the pricing of net-leased projects, it is the combination of all three that will determine a true purchase price.
Tenant’s Credit
* Many net-leased projects are based solely on a tenant’s credit.
* Tenants considered investment grade by a recognized rating agency usually trade at a premium (i.e. Walmart, Walgreens, General Motors).
* Tenants with junk bond (non-investment grade) ratings or minimal net worth typically trade for a higher return (i.e. UA Theaters, Dairy Mart convenience stores, Taco Cabana restaurants).
Lease
* Length of a lease is a another primary factor in determining the sales price on a net-leased investment. Primary terms of 15 or more years are preferred; 10 years is sufficient in 1031 tax-deferred exchanges and similar cases
* “Absolute” triple-net leases, where the tenant is responsible for roof, structure, and parking, trade at a premium.
* “Double-net (NN)” leases, where the landlord is responsible for roof and structure, trade at a higher yield and usually include a reserve taken for any potential repairs.
* Leases with “bumps”- rental increases or upside trade at a premium, with the exception of flat leases with investment grade credit.
Location
* NNN leases are credit-driven, causing location to be the least important factor.
* Investors often pay an added premium for the residual benefit of specifying a certain geographic location.
The combination of credit, lease and location can lead to paying a higher premium (i.e. Walgreen: 20 year NNN, flat) or receiving a higher yield (i.e. CSK Auto: 15 year NN).
The market for net-leased real estate investments is strong. The availability of attractive financing combined with minimal landlord responsibilities create highly desirable opportunities, especially for investors desiring a property for an IRS Section 1031 tax-deferred exchange.
Whether a risk-averse individual or institution is in need of a smart depreciation vehicle or a relatively safe “coupon-clipper,” net-leased properties provide great investments in both credit and real estate markets.
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