Why are so many owners of multi unit owners trading into triple net leased properties?

WHAT IS A TRIPLE NET LEASED PROPERTY? These are properties where, according to the lease, the tenant is responsible for all expenses including taxes, insurance, utilities and all building repairs and maintenance. There are other similar types of leases where the tenant pays just the taxes, called a single net lease or taxes and insurance called a double net lease.

WHAT ARE SOME ADVANTAGES? 

1) Long term lease- these leases are usually long term so turnover won’t be a problem, as it is with apartments.

2) Major credit tenants. Most apartment owners opt to trade into a single tenant property, like a fast food chain or even a chain drug store, so there is the stability of a credit worthy tenant.

3) Predictable income. Without unexpected repair and maintenance expenses, the income to the owner is consistent.

4) Management. Very little management required, as opposed to multi unit properties so your time requirements and management company fees if any, will be less.

 

WHAT ARE SOME DISADVANTAGES?

1) Rental income is fixed for a long term, so the yield could be less impressive as the lease matures.

2) Any company, no matter how strong, can go out of business. Remember Howard Johnsons?

3) It may be difficult to replace the tenant with a similar one. There are ways to try to protect against this, but there are no guarantees.

 

If you are looking to retire, travel or just take life easier, this could be a solution. Not a guarantee, but with the right tenant and location, it may be a way to stay in the rental business and continue to defer capital gain taxes. If this sounds interesting, check with your CPA and real estate attorney to see if it might be a possibility for you.

What we at PRS PROPERTIES CAN do for you, is give you a good idea what your multi unit property is worth in the current market as compared to other similar properties. We can review your profit and loss statement and suggest changes that may allow you to get a higher value than you may have thought. We can help you to get the maximum value for your property, should you decide to sell.

We currently have a number of investors who are looking for “off market” properties and we have put together many, many transactions which involve properties that are not listed for sale. Many buyers prefer to buy “off-market” buildings because they feel that they are getting something not available to the general public. If you are thinking of selling, give us a call. We can also help with your next investment, whether it is a triple net leased property, a multi unit building or another type of investment property.