With the ever-fluctuating stock and bond market, investing in real estate can be a very smart move. Real estate offers a steady, continuous stream of income for investors, unlike stocks and bonds which only benefit investors once they’ve been sold. Additionally, real estate holds its value with its potential income matching pace with the rate of inflation.
Although real estate appreciation doesn’t always perform as well as stock appreciation, it has the advantage of benefiting from lots of tax incentives. With all of this in mind, it’s no wonder that you, a savvy investor, are considering the purchase of a commercial, single net lease property.
But if this is your first time embarking on this kind of investment journey, you may have a few questions. Here are the answers to three commonly asked questions about single net lease properties.
How do single-tenant properties differ from multi-tenant properties?
Simply put, a single-tenant property differs from a multi-tenant property in a very obvious way: “single-tenant” involves renting to one tenant and “multi-tenant” involves renting to many tenants. However, as clear as that may seem, the differences do go beyond this.
In the case of a multi-tenant property, for example, you’re more likely to employ a “full-service gross lease”. This kind of lease requires that a tenant pays a fixed rent while the landlord pays for taxes, insurance, maintenance, repairs, and utilities for the property in question. The tenant pays the same, agreed upon rental rate whether or not operating expenses increase.
Alternatively, multi-tenant properties may utilize a “modified gross lease”, which essentially allows the lease to be modified in the event that operating costs go up unexpectedly. The overage in operating expenses would then be billed to the tenant. The single-tenant property, by comparison, allows for the use of a single net lease, double net lease, or triple (NNN) net lease structure.
What are the benefits of investing in a single net lease property?
It’s often said that a single-tenant net lease property is like a bond: its value grows over time with very little risk to the investor. Not only that, but while your property is appreciating, you’re still making an income thanks to renting and you’re not losing money on operating costs, taxes, or property insurance.
Net leases (single, double, and triple) also have a built-in allowance for rent hikes, meaning that a net leased property has a hedge against inflation. A single-tenant net-leased property is the most popular kind of investment for buyers who want to take a more “hands-off” approach to be a landlord. If you’re willing to take a little less in rent for a responsible tenant who can maintain your property, then this kind of property is the perfect fit.
Should you use a real estate broker when investing in a single-tenant net lease property?
If you’ve decided that single-tenant net lease properties are the kind of commercial property investment you’d like to make, you may be tempted to “go it alone”. While someone who’s already experienced in real estate investment may feel confident that they can navigate this new market, when it comes to your net lease investments, you don’t want to take any risks.
A real estate broker who specializes in commercial properties (namely single-tenant net lease properties) can assist you with everything from buying to selling to locating the right property for you. They can match your preferences for the desired property with available properties on the market. They’ll know exactly where cap rates are and they’ll be able to forecast emerging market trends, keeping you ahead of your competitors.
As a designated net lease property broker, they’ll also know if a property is about to be put on the market meaning you’ll get an edge on other buyers. A broker can handle the majority of negotiations, saving you time and effort. When the time comes to sell your investment property, your broker’s large list of contacts will help you get the best price for your property as well.