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 properties daily) to determine which is the right one for you, and provide you with a wider variety of options.
The job of the buyer's agent is most important to look out for the buyer’s interest in the transaction, working with an experienced net lease buyers broker allows you to avoid the pitfalls and mistakes. Seller’s agents only represent the seller so having someone on your side is the most practical.
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.
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.
A Cap Rate (or Capitalization Rate) is a financial metric used in real estate investing to measure the rate of return on a property investment. It is expressed as a percentage and is calculated by dividing the net operating income (NOI), or rental income of a property by its current market value or purchase price.
The main risk of investing in single-tenant properties is that you have a tenant that goes bankrupt and cannot pay the rent. To minimize this 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.
We first look at the location. Is it in a stable, growing market? How is the population density within 1.3 and 5 miles 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, and Discount Stores? How is the tenants' creditworthiness? 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.