Investing in Single Tenant Net Lease vs Residential
What is your ultimate goal as a real estate investor? Is it to retire as a millionaire by investing in low risk management and labor-free, inflation-resistant properties in which your tenants not only pay all the taxes and insurance but in addition do all the maintenance? Would you like your sole duty each month to just deposit the rent check?
Net Leased Properties
Although the purchase of net leased properties is not a new strategy, many real estate investors have not been aware of its existence. The traditional route to accumulating wealth through real estate has been to find and convert low-priced distressed residential properties into income producing rental units, being deeply involved in every phase of property management from do-it-yourself repairs to rent collection.
At a certain point, the successful real estate investor may have enough equity in his or her portfolio to “cash out” and move up to a less stressful, time-consuming, and labor-intensive route to retirement.
This can be accomplished with an initial net lease investment, and over time, through tax deferred exchanges, to the ownership of more and more valuable income producing properties. To illustrate, let us compare the investment in a rental property to one in a net lease:
Rental: You own the land and the building.
Net Leased: You own the land and the building.
Rental: You are the landlord.
Net Leased: You are the landlord.
Rental: You are the employee.
Net Leased: You have no employees.
Rental: You refurbish the property, find tenants, collect rent, pay property taxes, insurance
premiums, and are responsible for all the maintenance.
Net Leased: Your building is in excellent shape when you purchase the property and your
tenant is in place for the length of the lease. The tenant pays the taxes the
insurance and does all the maintenance.
Rental: Your income is subject to vacancies, economic conditions, competition, possibly
rent and eviction moratoriums, rent control, etc.
Net Leased: You will have no vacancies and your net income is a rent check each month from
an “investment grade” tenant with a proven track record, longevity, and a lease
guaranteeing you a fixed annual income for the length of the lease plus option
periods. In addition, there are periodic rent increases.
Rental: Your financing is usually from your own savings plus a note based on the value of
Net Leased: Your ability to borrow to purchase the property will be influenced by the financial
standing of your tenant and the terms of your lease.
A net leased property is an investment in which one owns real estate (land and building) and leases the building to a single tenant for a 10 to 25-year initial term. The tenant, usually a major well-known retail chain or corporation (a “Credit Tenant”) seeking to take the large amount of debt involved in ownership of real estate off its books, agrees to occupy the property, operate its business on the premises, and pay the landlord, in addition to monthly rent, all of the property’s operating expenses for the length of the lease. The investor’s sole duty, aside from his or her payment of the mortgage, is depositing his monthly rent check.
Note: The successful purchase of the net leased properties and 1031 exchanges is highly specialized and should only be trusted with net lease specialist brokers.
Catherine Robinson is a successful Real Estate Broker, Investor, Author and Entrepreneur. She is a member of the Orange Coast Exchangors, National Council of Exchangors, International Council of Shopping Centers (ICSC), Certified Commercial Investment Member Candidate, and numerous other Real Estate, Investor organizations.
Catherine Robinson built her career helping individuals maximize and increase the value of their real estate nationwide including tax-deferred exchanges. For more information call 949-637-2924, email firstname.lastname@example.org