What You Need To Know about Net Leased investment
Commercial real estate requires tenants to pay rent and net lease. The expenses are what should get paid by the landlord. The expenses are usually divided into three; insurance, maintenance and property taxes. The lease is usually given to tenants in written form. Read on to know how to evaluate net leased investments.
First, you need to know who will be guaranteeing the lease. Corporate guarantees are usually the most preferred. The most risky guarantees are individuals. The lease structure and terms are of importance. If a tenant is the same, then a 20 year lease is much preferable than a five year one. It is important that you view all the other options that a tenant has. If the end of the lease is approaching and there are no available options, then you will have to negotiate the lease in case the tenant says they want to stay. This is why most people prefer long base terms with longer options.
Secondly, location of the property is a huge determinant of how long it will take to re-lease it in case the tenant vacates. Majority of tenants usually pay way above the market rate in order to get the best locations. It is easier to re-lease a fast food restaurant compared to distribution facilities which are often large space. It is easier to find someone to replace a tenant who pays way below the market rent.
You also need to have an exit plan for net leased investment. You need to know how to get into the deal and if it will bring you money. If by the end of your hold period you see no profits, you need to have an exit strategy. Research the resale market for your investment. You may love your business idea but it fails to add value to the area investors, this will in turn limit the buyers if you decide to sell. Get to know about all this before you get into net leased investment.
It is also vital that you get to know of rent escalations ahead of time. This involves the frequency and percentage of escalations. The escalations vary depending on the different rental categories. Typically fast food leases tend to increase annually or over an extended period of time while drug stores normally don’t offer rent escalations. It is wise to view the credit rating of tenants. This provides a sense of stability meaning you won’t have issues time to time. There are companies that offer advice on finding property that is right for your investment. It is important to do research to make sure you get profits from net leased investments.