What You Need to Know to Invest in Net-leased Properties:

Many investors are looking for a safe place to put their money with the wild fluctuations in the financial market. Stable, predictable investment vehicles are increasingly hard to find, but smart investors do have choices. One of the better choices is to invest in single-tenant and multi-tenant, net-leased properties. Single-tenant net lease investments might also be called a corporate bond combined with real estate investments that still make sense today.

Here’s what you need to know about net-leased properties:
What is a net-leased investment? A, net-leased investment is typically a freestanding office, retail, or industrial building that is leased and occupied by one or more user or one or more companies. Typically the tenants have committed to a long-term leases – usually 3 to 10 years, and as long as 25 years with some offering increasing rent over the lease term.

What is a net lease?
There are different types of leases for commercial property in the U.S. The two most common leases are full-service leases and net leases
A full-service lease means that the tenant is paying one base amount to the landlord/owner to occupy the space and the owner pays all the expenses related to the building including insurance and property taxes. With a full-service lease, the landlord/owner also is responsible for all maintenance related to the building. For example, if a thunderstorm damages the roof, the landlord/owner must pay for the repairs.
In comparison, a tenant with a net lease is responsible for paying rent plus some or all of the operating expenses of the building such as taxes, insurance premiums, repairs, and utilities. Depending on how the leases are structured, they can be net-net leases or triple-net-leases. Specifically, in the case of a triple net lease, also known as NNN leases, the tenant agrees to pay all of the building’s operating expenses, real estate taxes and insurance.

How are single-tenant, net-leased investments different from multi-tenant buildings?
Multi-tenant buildings have more than one tenant, and as a result, owners and landlords must juggle multiple leases that begin and end at different times. These leases are rarely longer than seven years. That means that the building’s financial performance may be slightly more vulnerable to the ups and downs of the market.
Many net-lease investors have previously owned other types of real estate but are looking for an investment that requires less maintenance and supervision. For example, many apartment investors end up selling their high-maintenance properties and then reinvesting the sale proceeds in net-leased retail properties, as do many land owners who have previously never received any income or tax benefits from their property.

Who can invest in net-leased properties?
Net leased properties are appealing to a wide variety of buyers, from high net worth individuals to partnerships to large institutional investors like real estate investment trusts, life insurance companies and pension funds. Net leased properties also are very attractive to investors who need to do 1031 tax-deferred exchanges, or 1031 exchanges for short. Plus investors who are looking diversify their investment portfolio.

What are the benefits of investing in net-leased properties?
Many people consider net-leased properties as good investments because of their stable, predictable returns. Because tenants commit to long-term leases, there’s very little re-leasing risk. Moreover, net-leased investments can be tailored to an investor’s risk-reward expectations by choosing tenants with different credit profiles. For example, some tenants are rated by national credit ratings agencies while other tenants have only their previous financial performance to recommend them, (i.e regional or locale credit rated)

What are the risks related to investing in net-leased properties?
While there are very few risks related to investing in net-leased properties, tenants with non-investment grade credit profiles offer higher levels of risk. But that risk typically provides higher returns as well. And investors always need to think about the “re-lease ability” of a property if the net-tenant were to vacate the space

How are net-leased assets valued?
Unlike traditional real estate investments whose valued is determined exclusively by the real estate itself, a net-leased property’s value is determined by a combination of factors including the tenant’s credit, the length of the lease and rental escalations over the term, and, last but not least, the real estate. In markets where the real estate experiences wide valuation swings, net-leased property will maintain its value because of its bond-like, long-term lease and the credit tenant guaranty for the lease

When is the best time to invest in a net-lease property?
Net-leased properties are like all-weather tires. They are good investments in both good and bad economic times and in hot and cold real estate markets. Here’s why: a net lease is guaranteed by a long-term lease at pre-set rental rates. As an owner, you know exactly who will be a tenant in your building, how long that tenant will be there and exactly how much rent they will pay you. That means you will derive a steady income from your investment, regardless of how the economy or real estate market is performing.

As you see this is not that difficult right?
Just finding the right location, and product for you the investor, then assessing the lease documents and who your tenants are.