Amazon Unlocks the Potential of Passive Real Estate Investing
Austin Bowlin, CPA – Partner at Real Estate Transition Solutions It is called the Amazon Effect—and you’ve probably heard the initial capital investment, the investor plays no role in a lot about it. The ecommerce giant has reshaped, well, the operations of the property but shares in the profits or nearly everything, from the way that consumers think income. about shopping and accessing goods to the global supply chain. For institutional investors, the Amazon Effect has The Benefits of Passive Real Estate Investment squarely placed industrial properties as the darling of the in CRE commercial real estate market, and Amazon tenants are Passive real estate investing has grown tremendously among the most coveted. in commercial real estate, and today, there are more opportunities than ever before to place your money in a The insatiable demand has encouraged Amazon to seek high-quality, hands-off equity vehicle. Commercial real alternative properties as well. Many analysts predict that estate provides stable income and strong appreciation, Amazon could repurpose obsolete and vacant big-box but these assets also come with a high-barrier to entry department store properties into industrial distribution and require expertise to successfully execute the business centers, another sign of the soaring demand for these strategy. Passive investing, however, can unlock the spaces. tremendous financial and wealth-building benefits of commercial real estate assets. While investors are targeting the broad ecommerce market, Amazon is arguably the most desired and top-tier Three Passive Investment Vehicles to Own CRE credit tenant for these properties, and property owners Today, there are a lot of ways to place capital in real estate are happy to lock in long-term triple net leases, which through an equity vehicle. Some methods are new—like help to reduce operating expenses for the owner. Like crowd funding or opportunity zone funds—and others are most industrial properties, Amazon operates facilities on tried and true, like Delaware Statutory Trusts, REITs and triple net leases, meaning that they pay for most operating real estate funds, which are among the most popular and expenses, including common area maintenance fees, proven vehicles. insurance, and property taxes. The benefits of this trend aren’t for institutional capital alone. Small and mid-sized investors can tap into the earnings potential of Amazon industrial assets through tax-deferred 1031 exchanges and passive real estate investing.
First, What Is Passive Real Estate Investing? Passive investing simply means that the investor does not take an active role in the property or business. It includes equity assets, like stocks or mutual funds, or real estate assets, like REITs or Delaware Statutory Trusts. When it comes to real estate, there are direct and indirect styles of passive investment.
Direct Passive Real Estate Investing
Real estate is generally considered a passive income asset, but anyone who has ever self-managed an apartment property knows that isn’t always true. Owners with a professional property management firm that handles the day-to-day operations, maintenance and leasing of the property, or commercial owners with tenants on triplenet leases—a lease where the tenant pays for the majority of the operations costs—have a more passive investment experience. Leveraging this strategy, a property owner simply collects the income each month while playing a minor role in the operations of the property.
Indirect Passive Real Estate Investing
The indirect style of passive real estate investing is completely hands-off. An investor can buy into any number of real estate equity vehicles, gaining fractional ownership in the asset or portfolio of assets. Other than www.rhaoregon.org
Delaware Statutory Trust
A Delaware Statutory Trust or DST is a type of business trust that owns and operates real estate property. A real estate firm, known as the DST sponsor, acquires a property with its own capital first, then structures the property in a DST and brings it to the market through an official offering. Investors buy a fractional or concurrent ownership stake in a quality, professionally managed asset and receive monthly income in proportion to their ownership stake. DST’s have increased in popularity over the last decade because they qualify as a replacement property in a 1031 exchange.
REITS
A real estate investment trust—or REIT as it is more commonly known—is a company that acquires, owns, and operates real estate assets. There are public and private REITs, as well as traded and non-traded REITs. Private non-traded REITs work typically with institutional capital sources, but public both traded and non-traded REITs are registered with the SEC and shares are either traded in the public exchange markets or available for direct purchase from the issuer. Historically, they pay healthy dividends of 5% on average, much higher than the average stock dividend of 2%.
Real Estate Funds
An alternative to investing directly in a single REIT, funds such as a real estate interval fund invest in a variety a REITs, providing investors greater diversification. Some real estate funds trade in public exchange markets and others can be purchased directly through the fund. Unlike DSTs and REITs, real estate funds (continued on page 8) RENTAL ALLIANCE UPDATE February 2021
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