FREQUENTLY ASKED QUESTIONS:
1. How long are the leases? The original leases are usually 15, 20, and 25 years. The most common lease we see is for 20 years.
2. Are there options for renewal? Yes, generally for two or three successive 5 year periods and usually at higher rental rates.
3. For what expenses is the owner responsible? This varies lease by lease. The owner is almost always responsible for the roof and structure. The owner will need to purchase casualty and liability insurance. The owner will pay the property taxes, but the lease may obligate the Postal Service to reimburse the owner. Some leases may require the owner to pay part or all of the maintenance and to repaint the interior at five year intervals.
4. What will I do with the post office at the end of the lease? The Postal Service (USPS) historically releases the property at the end of the lease about 94% of the time. USPS generally only builds a new property when there is no room for expansion at the old location or because the rental rates in the area become prohibitive due to a higher and better use for the property.
5. Does the USPS have an option to purchase my property? Some leases provide for an option to purchase the facility at specified dates and prices.
6. Do USPS leases vary from facility to facility? Definitely, it is imperative to carefully read the lease, and review it with your attorney, to ensure a clear understanding of the owner's obligations. Fortunately, the lease is neither long nor unduly complex. The lease terms usually can be renegotiated with the USPS for future lease periods.
7. How much should I pay for a Post Office? In theory an investment is worth the present value of it's future cash receipts. The discount rate for the present value calculation is generally lower for a "safe" investment as opposed to an investment with risk or a variable cash flow. Investors are generally willing to pay extra for a predictable cash flow or safe investment. Even though there are several methods of calculating investment returns, a simplified method common in commercial real estate is the Capitalization rate commonly referred to as a CAP RATE. To calculate a cap rate first calculate Net Operating Income (NOI) by subtracting cash expenses excluding depreciation and debt service from projected rent income. NOI is then divided by the purchase price of the property to give you a "cap. rate." With this measure of investment income, you are then able to compare the property as an investment with similar properties or even with rates of return on governmental bonds or bank certificates of deposit.
8. Should I buy a Post Office near my home? Some owners of Post offices do live near their properties, but the vast majority do not. Since regularly replacing tenants is not a requirement for Post Office ownership, living a distance from your property does not appear to be a problem. The common element among Post Office investors is a desire to own properties with longer leases and financially strong tenants (ie: the U.S. Government). Their philosophy seems to be "why take risks if you don’t have to?" Our records indicate that many lessors own multiple post office properties and have for many years.
9. If I am selling a property, with whom should I list it ? If your water pipe leaks, call a plumber. If you want to buy a Ford automobile, a Ford dealership is a good bet. If you want to sell or buy a Post Office, going to Post Office Realty, Inc. is only logical. We are located in New Braunfels, Texas and are as close as your telephone 830-608-1231.
Since few owners are local, there is little need for a local Realtor. The Realtor with the highest likelihood of a quick sale of your property is the one regularly communicating with current and potential owners of similar properties. We talk to the right people, and we know the product!
10. How does owning a Post Office fit in with a tax-free IRC 1031 exchange? Our estimate is that about 50% of people selling property in a tax-free exchange do not know the particular property they wish to purchase as replacement property, or they want to use the sales proceeds for a purpose that does not qualify under IRC 1031. A simple solution is to buy a Post Office or government building as replacement property to satisfy the exchange requirement. After the purchase the buyer can then borrow up to 80% of the purchase price from a lender and can use the proceeds as he wishes. As an additional benefit, over time the government will pay-off the mortgage on the property. Since the U.S. Government has the strongest credit rating in the world, it is not surprising that lenders are willing to loan funds for the purchase of these types of properties at their lowest rates. Refer to our information on financing sources in this web site.
11. Is a Post Office a good investment? In answering this question, it is best to consider first the other investment opportunities currently available. If a person saves a portion of his earnings or is given cash or property, it is either retained in cash or invested. The principle investment alternatives are bonds, stocks or real estate. A prudent investor seeks to diversify his portfolio with a mix of investment types. The precise asset mix or allocation usually varies depending on personal investment goals and current economic conditions. As of, February 2002, interest rates on money market funds and ten year government bonds are at historical lows, and the stock market still sells at relatively high price earnings ratios indicating a strong potential for further downward movement. Lack of investor confidence in corporate financial statements further clouds the financial markets. Against this backdrop, owning a post office or other government building with a long term lease backed by the government looks very attractive to us. Since the value of real property cannot entirely evaporate, as can the value of stocks and bonds in extraordinary cases, perhaps the "safe" money should be invested in government buildings. Current yields on newer government buildings are currently in the 8.25 to 9% range. In spite of our obvious bias, in the interest of investment diversity, you probably should not have too much of your net worth in government net- leased buildings, but definitely make them part of the mix.