A Net Lease Investment is a freestanding retail, industrial or office building that is leased and occupied by one company. The tenant has committed to a long-term lease agreement of 10, 15, 20, or in some cases, 25 years or more.
The tenant is responsible for paying rent plus some or all of the operating expenses which include taxes, insurance, utilities, maintenance, and repairs. Some of these tenants are brand names, and even places you do your banking, drink your coffee, eat your lunch or fill your prescription every day.
1) Own property outside of your home state. With the passive nature of this investment, you can target acquiring properties in the best markets rather than owning property in your back yard. For example, you can live in California or New York and search for NNN properties for sale in Florida.
2) Live a hands-off lifestyle. Net lease investments have the same ownership benefits as other commercial real estate assets such as tax, cash flow, and appreciation. This could be a great option for busy working professionals, individuals that travel a lot, or people with family and busy social lives.
This type of investment can easily be transferred to heirs or other family members who have no desire to manage real estate.
Some Net Lease tenants have been very resilient during recessions and most recently the Coronavirus pandemic.
3) Net Lease Investments vs. Apartments
Not only are apartments management intensive, but apartment leases are typically for one year at a time, meaning the building’s financial performance suffers from the ups and downs of the market. It typically has a high turnover rate and potential loss of income with significant lease-up costs.
4) Net Lease Investments vs. Land
Investing in land carries the most risk, since it’s speculative in nature, and in some cases, there is little or no income generated.
Alternatively, net-leased real estate is considered the lowest risk property type, since it usually involves a long term lease with a creditworthy national or regional tenant.
They are strategically located with predictable long term income and opportunity for appreciation. Historically, net lease properties have the highest occupancy through market ups and downs. This is why net lease investments are one of the most passive forms of real estate ownership and requires little or no management, vacancy, or lease-up costs.
NNN in relation to single tenant properties means Net, Net, Net which are pass-through expenses the tenant pays in addition to paying rent to you the landlord. These expenses are typically property maintenance, property taxes, insurance and repairs.
The main risk of investing in Single Tenant properties is that you have a single tenant and if that tenant leaves or does not pay rent then 100% vacancy and no rent coming in. To minimize the risk you should consider a strong credit worthy tenant on a long term lease located in a strong location.
In single tenant properties you have a lease agreement with one tenant on a long term lease agreement as compared to apartments, where you have several tenants, typically on annual leases.
I first look at the location. Is it in a stable, growing market? How is the population density within 1.3 and 5 of the subject site? How is the household income? You would also look at the traffic count and site visibility. Is the tenant an essential business? Not vulnerable to E-Commerce threats, such as Fast Food, Automotive, Healthcare, Convenience Stores, Discount Stores? How is the tenants credit worthiness? You also want to evaluate the current lease. Does the lease have rental increases with option periods? Is it a full absolute net lease. Many factors go into evaluating a potential deal.
There are many net lease properties listed for sale on the web and through broker e-blasts making the job of reviewing properties and following up with them a daunting task. The job of a buyer’s agent is to sift through (in some cases 100’s of properties daily) to determine which is the right one for you. Many of these investors are in 1031 exchanges and have very tight timelines and requirements. Dedicating hours of research, phone calls and emails is not feasible for busy working professionals and businessmen. The job of the buyer’s agent is most importantly to look out for the buyers interest in the transaction, working with an experienced Net Lease Buyers Broker allows you to avoid the pitfalls and mistakes. Sellers agents only represent the seller so having someone on your side is the most practical.
Yes. There are many opportunities in other markets, don’t limit yourself to properties in your backyard. With an absolute net lease property, where the tenant is responsible for all of the expenses associated with the property it allows you to own an investment in the best market.