Why You Should Trade Into Triple-Net Leased Properties

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 is 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 the 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. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

Remember – KNOWLEDGE IS POWER!