1 Table of Contents Viking International Who we are! How we work for you and why you should choose Viking to represent you in your selling or purchasing of Real Estate Investments. What is a 1031 Tax Deferred Exchange and why should you consider it. What is a Triple Net (NNN) investment and why might it be right for you. Exchanging into a NNN property through the use of a 1031 Tax Deferred Exchange. Would You Like to Double or Triple Your Income? (Flyer) The Cost of Waiting! A MUST READ Housing Recovery in 21 Years? Property Valuation for ADDRESS! Property Comparison with a general Triple Net opportunity.
2 Viking International Who We Are! Viking International is a premier, full service real estate and investment company, specializing in apartments, commercial and net leased properties throughout the United States. We have positioned ourselves to be a leader, innovator and aggressive participant in a fluid and everchanging real estate market. Working to help build your real estate investments BUILD your capital The following information covers the basic programs and services we offer. We encourage and invite you to learn more about Viking International by talking with one of our qualified real estate professionals. John Zarvos, President of Viking International, is an established real estate broker with over thirty years experience as a real estate professional. Joseph R. Rodriguez, Jr. is a real estate broker with as many years experience in all facets of the real estate industry, including Residential Development and construction, large multi-family syndication, and both principal and broker transactions. Viking is a member of the Orange Coast Association of Realtors, and all southern California reciprocal real estate boards and multiple listings and computer services, in addition to being a member of the Real Estate investment Association of California and World Wide Web Internet Marketing. Viking International is one of the top investment Real Estate Brokers in California! We specialize exclusively in the brokerage of investment properties We are one of the top Real Estate Brokerages in Orange County and Southern California. A Computerized Stock Market approach puts a country wide network of agents to work selectively marketing a property with the first few hours of the listing period! We have prime office facilities located in the heart of Orange County s financial district. Correct pricing strategies have resulted in an average sale price well above 95% of the listing price. Properties marketed and sold at the highest prices and best terms. Listed properties (when authorized) discreetly advertised in appropriate publications. Approximately $300 million in recent marketing/sales/listings.
3 Our Marketing Program 1. The Marketing Package: (The first 30 days) A complete promotionally oriented package will be prepared with all pertinent investment information needed to induce our databases of thousands of potential qualified buyers/ investors. Immediately upon listing. 2. Advertising Campaign: (First 2 weeks/ then alternated) An ad of your property will be placed in carefully selected newspapers such as: The Orange County Register, The Los Angeles Times, The Wall Street Journal, Commercial Real Estate news and other local target area newspapers, trade publications and the internet. 3. Direct mail & Phone Canvassing: (The first 30 days) A JUST LISTED letter will be mailed to a targeted area around your property. A phone canvassing program will be started covering existing owners in your specific market area as soon as your property is placed on the market. Direct Promotion to the Professional Brokerage Community is assured with Viking! 4. World Wide Web, Internet Marketing: (Immediately) Websites such as Property Line, Loop Net investment site (as soon as listed), appropriate MLS s and all affiliate websites plus internet investment sites. 5. Multiple Listing Services/ Trade Publications: Property is placed in specific Real Estate Boards Multiple listing services, Property Line Brokers Guide, and commercial Real Estate News. 6. Real Estate investment Association of California (RIOAC): Property to be presented to thousands of brokers in orange and other target counties with thousands of marketing packages of the property distributed. 7. Investment Specialists List: Personal contact and presentation of the property with the most successful Investment Property specialists in your type of property. 8. Top Professionals Marketing the Property: (Immediately; as soon as it s listed) A Senior investment Broker as well as a Broker s Executive Assistant will also be active in the marketing of the property. 9. News letter: A periodic newsletter is ed to qualified data base of thousands of investors in your market category as well as qualified brokers. 10. Marketing Package: A marketing package will be faxed/ ed to all qualified buyers/brokerage responding to the listing.
4 Residential and Income Properties Apartments and Rental Units Commercial Condominium conversion Projects 1031 Tax Deferred Exchanges Shopping Centers NNN Investments Small and large custom/tract sales Raw and tentative mapped land and lots for development Golf Course, Resort, Mobile Home Park properties, and Self-Storage units Timeshares, Hotels, and Casinos We believe that: The concept of true representation is what our firm has brought to the real estate industry. Our methods of marketing investment properties have proven time and time again to benefit all parties involved. A few Recent Transactions
5 What is a 1031 Tax Deferred Exchange? The IRS Tax Code allows you to sell one or more investment properties and buy one or more properties through a qualified intermediary (QI). The 1031 Exchange is a tax deferral strategy for highly appreciated real estate. The seller cannot touch or control the funds. The basic rules are that: new property(s) have a price equal to or greater than the property(s) being sold, all of the cash from the sale must go to the purchase, and title must be held in the same name as the property sold. The IRS has three basic rules regarding the identification of the replacement property: You may identify three properties of any value, or you may identify any number of properties if the total fair market value of what is identified does not exceed 200% of the sale price of the sold property, or if you identify more properties than are permitted under the above rules, you must acquire 95% of what was identified. The IRS has established an identification period for the new properties. You have 45 days from the closing date of the sold property to identify the potential new properties. You have 180 days to close the replacement property from the date of closing of the original sold property. DISCLAIMER: It is imperative that you seek the advice of a CPA or tax attorney to determine all tax aspects of an exchange. Why consider a 1031 Tax Deferred Exchange into a triple net lease property. Very Important! Your existing property is highly appreciated. You have fully depreciated the property The property is too management intensive The property is not providing enough cash flow Triple Net Lease Opportunities A triple net lease (NNN) is where the owner (lessor) of the property leases the property to a lessee, who pays rent to the owner (the lessor) as well as all taxes, insurance and maintenance that arise from the use of the subject property. The owner of a NNN investment is relieved of almost all management and expense responsibilities. What are Triple Net Leased Investments? Many real estate investors become dissatisfied with the management problems associated with real estate investment ownership. In recent years, more and more investors are becoming familiar with the ease of owning commercial properties that are occupied by National Tenants who are often credit rated, using the vehicle of a triple net long-term lease. The advantages with this format are that the tenant is obligated under this form of lease to pay for all expenses associated with the operation of the property including property taxes, maintenance, insurance etc. When this situation is combined with a National Credit Tenant, the investor can be assured of a management free property with a minimum of risk.
6 Such companies as Walgreens, Wal-Mart, Barnes and Noble, Winn-Dixie, 7-Eleven, Inc., Sherwin Williams, Dollar General, Auto Zone, Rite Aid, are typical of the types of NNN leased investment properties that we provide for our clients and investors. These are known as Single Tenant Net Leases. What kind of returns can an investor expect from these kinds of properties? Returns depend on how you evaluate your investment. Capitalization Rates are the most common way to evaluate returns (take 1 years Income / Price) and they currently are averaging from 7% to 9% depending on credit risk, location and value of the income stream. Capitalization returns vary with the stock market, bond market, and other financial instruments. With the ups and downs of the stock market and the recent turmoil in residential housing, more and more investors are seeking refuge in Triple Net Leased Investment market. This increased demand, coupled with low interest rates, has driven cap rates down over the past 10 years. In general, the return on equity in a single tenant NNN property can exceed that of a rental property by over three times the return and sometimes even higher! Viking International has been involved in hundreds of millions of dollars in transactions over the past 33 years as an advisor for our clients. We locate the properties, structure the transaction, write the offers, and see the transaction through to the closing while maximizing our clients existing underperforming equities. We are very experienced in the Triple Net (NNN), and (NN) lease properties that are free of most landlord responsibilities. Although many types of corporate real estate are potential candidates, we prefer national companies such as: Mc Donald s, Taco Bell, Burger King, Denny s, IHOP, Seven- Eleven, AutoZone, EconoLube, Sav-On Drugs, Walgreens Drugs, Office Depot, Albertson s (Drug and Grocery stores), KinderCare, Tutor-Time (child care), and certain Medical Office Buildings. We show clients that most investors in Orange County are earning around a 2%-4% return with current equities in their investment property. You could be potentially earning anywhere from 6%- 10% or more with alternative forms of investment real estate with no management, maintenance, taxes, insurance or hassles to you. The sale-leaseback of NNN properties often begins with companies recognizing that assets frozen in real estate are neither good for the balance sheet nor a productive utilization of expansion capital. Now more than ever, businesses have a need to convert existing real estate assets into cash and find cost-effective and efficient alternatives to funding acquisitions, special investment opportunities, construction of new facilities, and expansion of existing franchises. Astute financial officers recognize this as an opportunity to enhance the corporate balance sheet by raising cash without the costly, time-consuming process of a new debt issue, and without any restrictive financial covenants. This corporate need provides you the opportunity to own a property where you lease to a National Credit Tenant that is corporate backed, or backed by a highly experienced and seasoned multiple franchisee owners.
7 Benefits of Triple Net Lease opportunities: High return on Investment similar to bond investing with Real Estate as the security. (6% - 10%) Lower interest financing: With National tenants, lenders offer very favorable rate. Leases have rental increase built into the lease based CPI, Percentage, Cost of living, etc Renewal options & Flexible terms are part of the lease. You start with a new deductible depreciation basis that can be accelerated by using the cost segregation method of depreciation if so elected. No day to day management responsibilities. Generally more secure than rental unit ownership. No vacancy issues, national single user tenants. Why Exchange into a 1031 Tax Deferred NNN Real Estate Investment. With the price of apartment buildings today, NOW is the Best time to think about Selling your labor intensive apartment building and purchase a non labor intensive single tenant, NNN building. Is it time to maximize your income return on investment properties? Increase your cash flow and earnings. Returns on apartment buildings in B or better locations are in the 2 to 4% range; where we can deliver Single Tenant NNN properties for 7-9% (+-) rates. Eliminate the day to day responsibilities of management or the cost of professional management. Stabilize property occupancies. Guaranteed rental increases. National credit tenants Increase in depreciation basis. Example: Current property: Beach city 4-Plex valued at $1,000,000, no debt (best case). In general, this property will gross approximately $75,000 per year with $25,000 in expenses including vacancy loss, deferred maintenance and management for a cash return of $50,000. This results in a 5% return on investment (Most properties that we are involved with would return less than $35,000 given these parameters). Potential NNN property: Invest $1,000,000 at 35% down and purchase a NNN property for $2,857,143 that has a cash flow of $78,000 after debt service plus principal reduction of $30,600 for a total return of $108,600 before taxes. This is an approximate return of 10.8% on your investment! Please see the Market Evaluation of your property and the comparison worksheet for a detailed analysis of a property that fits your financial position based on your current investment property.
9 The Cost of Waiting I think it is better to own an asset class like commercial real estate that has the potential to pay a higher monthly cash flow and has a continuing good appreciation potential rather than holding onto residential income rentals which can pay far less monthly cash flow and have an uncertain appreciation potential for the next several years. As an investor, if you have ever wanted to do a 1031 exchange but decided to wait until the real estate market peaked, you re not alone. For roughly the last year and a half, many potential 1031 exchangers have been taking their income-producing properties off the market, waiting for the real estate market to get stronger and sell their property for higher profit margins. In theory, the waiting strategy makes sense. But in reality, it s nothing more than a costly mistake. Thanks to the credit tenant (NNN) investment option, investors can sell their income-producing property at a less-than-peak selling price, do a 1031 exchange, and still potentially make more money than if they had waited for the market to turn around. Don t lose out. Instead, take the following two scenarios into consideration when considering the cost of waiting. SCENARIO 1 Imagine that you own a residential income property that you bought 25 years ago for $100,000. Today, it is worth $700,000 when the market is down and $750,000 when the market is up. Many investors will naturally want to wait for the market to peak so they can reap the extra $50,000 of appreciation. If you wait, you will continue to make roughly $14,000 a year in cash flow from this income-producing property, assuming the property is netting $1,200 a month (or 2% on the appreciated equity). However, if you purchase a (NNN) commercial property, you would receive $42,000 a year, assuming a 6% yield on $700,000 of equity. The difference between $42,000 (from the commercial property) and the $14,000 (from the residential property) is $28,000. This means that in less than two years you can recoup the $50,000 of lost appreciation just by earning a standard (NNN) cash flow. But there is more. SCENARIO 2 On July 10, 2006, the Wall Street Journal ran an article by Jennifer S. Forsyth titled Commercial Real Estate Maintains Its Strength. It is said that despite a cooling housing market, over-building and oversupply has happened in the residential market and not in the commercial market. Assuming this means that the residential income market will remain flat for, say, three years, you as an investor would receive no appreciation during that time if you held on to that residential income property waiting for the market to turn around.
10 Conversely, because the commercial market is in balance, we can assume a commercial property can continue to appreciate at 3% per year. So, if we take a typical (NNN) commercial property that is 50% leveraged, a 3% appreciation on the property would be a 6% appreciation on your equity. That 6% appreciation on $700,000 of equity is $42,000 per year. By adding that $42,000 of appreciation to the $28,000 difference between cash flows, you end up ahead by $70,000 per year. Over three years, this equates to a gain of $210,000 an amount more than four times better than the $50,000 of lost appreciation. If you have decided not to do a 1031 exchange in hopes of the residential market turning around, I encourage you to do the math. Not doing so may cost you more than you think. IMPORTANT DISCLOSURES: The direct or indirect purchase of real property involves significant risks, including market risks and risks specific to a given property. There are a number of significant tax risks and tax issues involved with the purchase of real property. Investors should consult their own tax advisors and legal counsel.
11 OC Register Print Edition September 2, :00 AM Housing to recover in 21 years? By JONATHAN LANSNER An economist at the Moody's credit-rating agencies has a new report out saying that you'd better not hold your breath waiting for a quick return to peak pricing for housing in California. Economist Celia Chen says California pricing won't regain its old peak before We decided to try to put that into perspective with the help of our trusty spreadsheet and some Data-Quick data. Let's look at Chen's call in Orange County terms. If she nails that 2030 prediction that will mean that local housing will average annual gains of 2.7 percent for the next 21 years from January's cyclical median-price low of $370,000. Let's say those are slim profits. Compare that with other historic upticks for Orange County's median selling price: 3.6 percent Annualized gain made in the 20 years ended in July. Curiously, prices have exactly doubled since July 1989, amid another great buying frenzy that ended badly. 8.5 percent Annualized gain from the bounce from last cycle's bottom (January 1996) to new peak (April 1998) percent Annualized gains generated from the 1996 bottom of the last housing downturn to the June 2007 peak of $645, percent Highest average annual return in a five-year period in DataQuick's records. (60 months ended March 2006) 20.8 percent Highest average annual return in a three-year period in DataQuick's records. (36 months ended Feb. 2005) Want to make your own prediction, based on expected yearly profits going forward? See the chart that mixes annual rates of housing gains and when the rate would bring Orange County back to its June 2007 peak of $645,000.
12 This conservative comparison assumes an equity position of $400,000, equal property loan amounts, with lower interest rates and longer loan term on the existing investment property and the NNN property still produces in excess of over twice the cash on cash return! Disclaimer: These financial calculations are only approximations to help analyze the property. Consult your own legal and financial advisors to assess your individual situation.