Sunday, February 8, 2015

Rich-Uncles Explains 12%, 5-Year Investment Return Forecast

Nexregen REIT (aka Founders, Harold Hofer (CEO) and Howard Makler (President) get a bunch of questions from prospective investors.  See: With-effort-and-transparency-rich-uncles makes history in Irvine for some typical questions and answers on the investment opportunity.  Perhaps the most often asked question investors ask is: How do you go from a 7.5% annual return offering to a 5-Year, 12% total return forecast?

I admit, it does intuitively sound like quite a leap.  Until of course, you take a closer look of how time and compounding interest plays  the deciding factor.  Check it out:

Cash Dividends.  Right now the cash dividend is 7.5% per year, paid quarterly, and it's fully covered by the rents collected from tenants like Del Taco and Chase. (Chevron station in Sacramento, CA currently in escrow).

Loan Amortization.  The monthly mortgage payments include a pay down of the mortgages’ principal balance. Every month, the amounts due under the mortgages get smaller, building up equity.  This is akin to you paying down your home loan and building equity in the process.

Rental Increases.  The leases provide for increased rents over time. Typically, with single-tenant triple net leases, rents are adjusted upward by 10% every 5 years (or 2% per year on average). Higher rents translate into higher property values.

Dividend Reinvestment.   Most Rich-Uncles investors have elected to purchase additional REIT shares with their quarterly dividends, which is what we call, Dividend Reinvestment.

THEREFORE, if you reinvest all of your quarterly dividends, and if through combination of mortgage principal balance reduction and higher rents, property values effectively increase by only 2% per year on average, the value of your investment at the end of 5 years will have increased by 60%, or 12% per year on average.

This thoroughly addresses the 12% Total 5-Year Return question, don't you think?  On another exciting note, the month of December 2014 saw an incredible uptick in commitment as 93 new investors joined the Rich-Uncles family.  That's quite the vote of confidence!

Thanks for reading!

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