Monetization is just a fancy way to say “sell.” While selling your house is technically monetizing it, the term is usually used on a much larger scale. For instance, some of the companies you hold in your retirement portfolio are probably doing it with their real estate to boost their returns to you. At the same time, you can also benefit from companies that monetize their real estate by buying the properties or buying shares of companies that own the properties.
Monetization and Corporate America
Many companies that own large portfolios of real estate choose to monetize them. The idea behind this is that the company should be able to make more money from capital invested in its operations than it can from owning real estate. Monetization also allows the company to operate with fewer fixed assets, making it more nimble because its assets aren't tied up in buildings that can take a long time to sell. Fast food restaurants, drugstore chains and home improvement chains all use this strategy -- usually monetizing their real estate to fund expansion.
Monetization Case Study
As of the date of publication, the nation's largest drugstore chains monetize their real estate. One of the largest drugstore chains finished November 2012 with a 12.24 percent return on equity. However, at the same time, real estate investors were buying its locations up at a 6.4 percent rate of return. Instead of holding real estate that was worth 6.4 percent, the drugstore chain focused on its core business of filling prescriptions and selling miscellaneous items, earning 12.24 percent.
Buying Monetized Properties
One way you can benefit from the monetization of real estate is to buy the properties that get spun off. While you usually won't make as much money owning them as you would owning the companies that underlie them, real estate ownership can protect you against inflation. Because these buildings frequently cost millions of dollars, you can own pieces of them by buying shares in real estate investment trusts. REITs invest in portfolios of real estate assets, just like mutual funds invest in portfolios of stocks, and pass their cash flow through to you. You can also buy pieces of individual buildings as a tenant-in-common with other owners. Purchasing TICs can be complicated, though, so it's a good idea to get some help from an accountant or attorney before you move forward.
Your Personal Monetization
Someday, you'll probably monetize your home when you move for a job, move to a nicer home, need to make room for a growing family or move to a retirement community. What you do today while you own your home will impact how much money you can get for it in the future. Maintaining your home now will help protect its value. Another way to prepare for future monetization and make yourself more comfortable is to make additions that will add value. While a wine cellar or expanded garage might not add a lot of value to a starter home, turning an attic or basement into a bedroom or family room probably will.
- CBRE: Asset Monetization
- YCharts: Walgreens Return on Equity Chart
- CCIM Institute: Net-Lease Drug Store Cap Rates Decline
- REIT.com: What Is a REIT?
- TM 1031 Exchange: TIC Real Estate Investments
- Home Care Maintenance Services: Why Maintain Your Home?
- US News: The 5 Best—and 5 Worst—Home Improvement Projects for Your Money
- Photos.com/AbleStock.com/Getty Images