Net lease investments are in increasingly high demand, and it’s no mystery why. After all, they seem like a practically guaranteed source of steady, maintenance-free income. Yet even if you can already see plenty of value in investing in net lease properties, there may be some additional benefits you’ve been overlooking. It’s important to know this in order to accurately assess the risk/reward ratio, especially with triple net properties for sale.
One of the primary benefits many investors see is that of having a long-term tenant. The problem with residential real estate is finding tenants who’ll stay for a reasonable period of time. Not only does finding new tenants involve work and expense, but you also lose money during the time your property is unoccupied. With net lease investments, though, your tenant, as a business owner, has a lot invested in staying in that property. As long as their business is successful, they’ll stay and pursue NNN properties for sale.
Another easy-to-spot benefit is how little effort it takes to manage the property once all the contracts have been signed and the tenant is settled in. In almost all cases, building repairs are the responsibility of the lessee. Compare that to residential investments, where tenants are calling you to repair every leaky faucet. This is truly the type of investment for investors to hate the thought of all the maintenance headaches that go along with renting a property out.
It goes beyond the obvious benefits, though. This type of investment provides unique financial advantages, too. The most attractive of these is that you’ll almost always get a higher rate of return than you would from many other types of investments, even in the real estate field. Naturally, a high return typically comes along with high risk, and this is true of net leased investments, too. Before you consider investing in these properties, you’ll want to get clear on exactly what the risks are.
Another benefit of these investments is the fact that you can take a depreciation deduction from taxable income. Needless to say, these tax write-offs can save you a considerable amount. On the flip side, as the property appreciates in value, you’ll be the one to receive all the benefits.
Diversity is yet one more benefit of placing your money in net lease investments. Investment in properties like these gives you a greater ability to choose a variety of types and sizes of properties and invest in more geographic areas than just locally. Diversifying this way helps keep your investment capital safe.
While there are many advantages of investing in net lease properties, as with any type of real estate investment, there are risks and drawbacks to be aware of, too. For instance, cap rates tend to be higher than usual, ranging from 6% to 9%. Ultimately, you’re paying for the fact that management of the investment is so easy and hands-free.
In addition, there’s still always the risk of default, even when your tenant is a serious business owner. Things happen, and businesses go under all the time. You’ll want to make sure you understand the credit rating system for businesses so you can be aware of the risks related to the types of tenants you’re considering.
If you’re considering getting involved in net lease investments, make sure you understand not only the benefits of these properties but also the risks.
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