If you’re new to net lease investments, we’re happy to show you why this commercial real estate niche has gained such a robust following! Net lease investors essentially reap all the rewards a standard building owner and landlord would, minus nearly all of the downsides.
This is because these freestanding retail buildings are typically occupied by national or regional creditworthy tenants that commit to long-term leases of 10 years or longer. By signing a net lease, these tenants – which can range from drugstores to dollar stores, casual/quick dining restaurants to auto parts retailers and more – not only agree to pay rent, but also commit to some or all of the property’s operating expenses.
This kind of agreement is a big boon for landlords, as the onus traditionally lies with them when it comes to a property’s maintenance and financial obligations. With a net lease, the tenant absorbs these responsibilities, which may include repairs, utilities, general maintenance, insurance premiums and even taxes.
Though the investor’s duties to the property never increase once a net lease is signed, the tenant’s rent typically does. Most net leases contain built-in rent increases for the duration of the term that maximize the investor’s return. The investor nets the majority of this money since they do not have to worry about operating expenses.
Taking these responsibilities off the table allows net lease investments to remain very passive in nature. The investor doesn’t have to spend any precious time dealing with on-site headaches. In fact, they don’t even have to live anywhere near the actual asset for it to be a successful, viable investment!
No investment is ever completely “recession-proof,” but net lease investments are considered one of the strongest throughout the market cycle. The long-term nature of the lease, backed by a credit tenant with a well-known name, situated in a highly trafficked corridor provides the investor with some down-market resistance.
Low maintenance, low turnover, high credit, increasingly higher rents. These are all things to love about net lease investments. Now that you know the ropes, let InvestCore help you get started on your path to net lease investment success!