The value of something is more than just a monetary figure; it is its worth and importance to you. Think of what you could do if you received a substantial lump-sum of money from a telecom tower lease prepayment. If you own a small business, could you expand and increase your revenue? If you run a non-profit, how many more people in the community could you reach? If you are retired, how would your quality of life and of those you love improve? If you are a strata, could you pay for required works now thus preventing foreseeable problems from growing in scale and cost?
Whether you seek the advice of a professional or rely on your own experience, there are countless ways that you can invest your money. The return one can get from investing a significant fund can greatly outweigh the amount of periodic telecom tower rent you might receive from your telco site lease.
Furthermore, just as you know your business, we know ours. Just as you might turn to a real-estate broker to help you buy or sell your home, it makes sense to lean on the expertise of seasoned Australian telecommunication industry professional to maximise the value of your telecom tower lease.
BASELINE: INVEST YOUR CURRENT RENT
Let’s take a look at apples-to-apples investment scenarios comparing typical rent to some alternatives available with a prepayment.
To establish a baseline example, say you receive $1,500 per month and your rent increases 4% every year. If you were to invest your entire rent check every month at a healthy 7% rate of return, and you think there is only a 3% chance your lease might be terminated in any given year, your invested rent stream might look like this over time.
ALTERNATIVE: PURCHASE AN INVESTMENT PROPERTY
Now let’s assume you receive a lease prepayment of $160,000 and are then able to purchase a $800,000 investment property with 20% down and a 5% interest rate mortgage. You would now have a tangible asset with equity that is no longer subject to any kind of “termination”.
Furthermore, if we assume a realistic investment return (CAP Rate) of 5%, an annual increase in property value of 4%, property taxes of 2%, and that the property rent is increased 4% every year, your invested lease prepayment could look something like this over time. This is without any added value you may be able to add to an investment.
ALTERNATIVE: INVEST IN YOUR BUSINESS
If you own a business or want to start one, there are countless ways you can use a lease prepayment of $160,000 to help it grow. It could be leveraged to secure a small business loan, hire an additional employee, increase marketing efforts, upgrade back-office systems, open a new location, you name it. You are in charge and know how it could be used best.
If you achieve a 10% return by investing in your business, this is the impact your prepayment could have over time.
ALTERNATIVE: INVEST FOR RETIREMENT
Many landlords are counting on their rent check to cover expenses in their retirement years. Not only is this an extremely risky approach considering the very real possibility that the site can be terminated or the rent is reduced, but there are other established retirement strategies that can bring a greater and much safer return.
Let’s say that by working with a financial planner you are able to put your prepayment to work through your superannuation gaining a 10% return. This is how a well-managed investment plan might compare over time.
ALTERNATIVE: PAY DOWN DEBT
Whether it’s a personal loan, credit cards, or an equity line of credit, paying off debt can not only be a huge emotional relief, but also one of the most impactful ways of using your $160,000 prepayment. Let’s assume you have borrowed money from various sources with a blended 8% interest rate (for reference, the average Annual Percentage Rate for variable rate credit cards is over 15%).
The chart illustrates how much money you would save over time by using your prepayment to reduce your debt.
The information in this chart is provided for illustrative purposes only and does not constitute investment advice. It is also not an offer to invest or to provide management services. The information is subject to correction, completion and amendment without notice. You should always consult with your own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of any investments you might make.