Commercial real estate requires a tenant to pay a net lease in addition to paying rent. The expenses are what should get paid by the landlord. The expenses are usually divided into three; insurance, maintenance and property taxes. The tenants are given a written lease indicating the items that are to be paid. Read on to know how to evaluate net leased investments.
First, you need to know who will be guaranteeing the lease. Corporate guarantees are usually the most preferred. The most risky guarantees are individuals. Get to know the lease structure and the how long are the terms of the lease. If a tenant is the same, then a 20 year lease is much preferable than a five year one. It is important that you view all the other options that a tenant has. In case there are no other available options, you can negotiate the lease if the tenant intends to keep staying and the end of the lease is near. To avoid such inconveniences, many people prefer long base terms that have longer options.
Secondly, the amount of time that the property can be re-leasable depends on the location of the property. Majority of tenants usually pay way above the market rate in order to get the best locations. It is easier to re-lease a fast food restaurant compared to distribution facilities which are often large space. You will have an easy time to replace a tenant who pays below the market rent.
You also need to have an exit plan for net leased investment. You have to develop a strategy that you are sure will give you cash in the long run. You also need to have an exit strategy by having an idea of your hold period. Research the resale market for your investment. If your business idea is pleasing to the investors, it will add more buyers to your list in case you decide to sell the property. This is why research is important before getting into net leased investments.
It is also vital that you get to know of rent escalations ahead of time. This involves the frequency and percentage of escalations. The escalations vary depending on the different rental categories. Drug stores usually don’t get rent escalations while fast food leases increase over a certain period of time. Make sure you check the credit rating of tenants before leasing your property. This provides a sense of stability meaning you won’t have issues time to time. The good news is that there are companies that offer tips on finding the right property for net leased investment. It is important to do research to make sure you get profits from net leased investments.