What is a Net Lease Investment?
A net lease refers to a contractual agreement between a landlords and tenants where the tenant pays a some or all the taxes, insurance costs, maintenance costs as well as the rent. These types of investments are highly sought after due to the relatively hands off management and stable income stream.
Net Lease investments can be viewed as alternatives to bonds as they can be a safe place to invest money. The risks associated to these are based on the credit of the tenant, lease term, location, lease structure and rent relative to market. However, smart investors who thoroughly evaluate the properties do have choices and can mitigate their risk.
Income Stream
Consistent cash flow from investment with the advantage of rental increases throughout the duration of the term.
Tax Deferment
Ability to reinvest proceeds from sale in a 1031 exchange to defer capital gains tax.
Limited Management
Typically these leases are not management intensive for the owner and can be completely hands off investments.
Upside Potential
Depending on the current rent in place investors have the ability to substantially increase their yield in the future.
Long Term Investment
Long term leases give investors flexibility to address short and long term goals and objectives.
Sought After
Due to the varying prices and yields of these investments they are highly sought for both conservative and risk adverse investors.
Criteria of Net Lease Investments
When reviewing net lease investments there are number of things that each investor must consider such as their motivations, goals and objectives. Some of the critical features of each property and lease include
Credit
The credit of the tenant is an important factor when evaluating investments as it plays much into the yield produced by the property and stability of the underlying lease.
Term
The term on the lease is critical as this will determine how long the tenant will be in place and how risky a particular investment may be.
LEASE STRUCTURE
Investors need to decide what type of investment they are targeting absolute NNN, NN (which landlord is typically responsibility for maintenance and repairs), ground leases and multi-tenant investments.
RENTAL INCREASES
Many of these investments have rental increases throughout the duration of lease term, and each property is different even if it is the same tenant.
RENT RELATIVE TO MARKET
The rental income the tenant is paying is important in the event the tenant leaves at the end of the lease term as your yield may change.
Let's Invest!
The above information is only some of the information needed when evaluating net lease properties. We would be more than happy to discuss further to help answer any questions or help in your search for the perfect property.
Matt McParland
Vice President
MMcParland@MidAmericaGrp.com
630.954.7902