Net Lease Properties are assets whose lease requires the tenant to pay, in addition to rent, some or all of the property expenses that normally would be paid by the property owner, including real estate taxes, insurance, maintenance costs and utilities. Generally, net lease properties are single tenant, free standing buildings such as fast food establishments, banks, and convenience stores. Multi-tenanted net lease properties also exist, but tend to be smaller buildings, with 2-3 tenants, where you may find tenants like a phone service company next to a coffee shop and/or a shipping/printing company (i.e. Fedex).
There are several advantages to triple net leases, which are considered one of the more secure investments you can put your hard-earned money into. Many investors are looking for a safe place to put their money with the wild fluctuations in the financial market – net lease properties offer a lower-risk income. Stable, predictable investment vehicles are increasingly hard to find, but smart investors do have choices. Capital investments in net lease properties is preserved, often with appreciation and better still, there is often a tax deferment of any capital gains from a sale with a 1031 exchange.
One of the most obvious advantages of net lease properties is the minimal management obligations. Triple net properties (NNN) relieve the owners with the daily burden of maintaining a property and shift the hassle to the tenant. With little to no management responsibilities, owners tend to hold onto these assets long term, and provide a solid, steady income investment for future generations.
Assessing the value of net lease properties is dependent on a few variables. Primarily, one would look at the location of the asset combined with the reusability of the building. Is the asset located on a main thoroughfare surrounded by an area with supporting demographics? Is there easy access to a site with a signalized intersection? All things one should consider when determining the building’s value.
You must also look at the tenancy of the net lease property. Is it a creditworthy tenant? This speaks directly to the risk level of the investment and investors will often turn to Standard and Poor’s or Moody’s for their credit rating. With private companies, investors will request financials to evaluate the overall credit worthiness of individual firms. Having investment grade credit is essential to determining the value of net lease properties.
And last, in determining the value of net lease properties, you’ll need to take a look at the lease itself. Long-term leases, ten plus years, are ideal. You will also want to ensure the lease has minimal clauses that shift any burdens, including maintenance expense, back to the landlord or owner. Leases containing default penalties, cancellation clauses or unexpected expenses will quickly reduce the overall investment value and if you are new to investing in net lease properties, it is highlight recommended that you seek the help of a broker and attorney who specialize in this type of investment.
Knowing the basics, it is clear why net lease properties make for solid investment opportunities. Make sure to contact us to answer any questions you may have or to begin exploring the net lease properties we currently have for sale. You can also find more information on net lease properties by looking through our Net Lease 101 section of our site.