A net lease refers to the requirement for the tenant to pay a part or the whole amount of taxes, maintenance costs and fees in addition to the basic rent. Its familiar with real estate done for commercial purposes. There are their types of net leases and they include; single, double and triple net lease. It’s used by owners to move the burden of taxation, insurance and fees and it may call for lower rent.
Here are factors to consider before considering a net leased investment.
A property that is placed strategically will be on a high requirement by the leasee. The property should not be difficult to find and the demographics of this place should show a positive trend. It comes with the advantages of tenant demand together with ease of replacement. Most of the time, the investors overlook the impact of place and only think of the reliability of renters but the truth is both have to be considered for the investment to be an effective one. Additionally, take into account the household incomes and spending habits of the area. As much as it may be seen expensive to invest at a strategic place, it pays in the long run.
Tenant’s Credit Potential.
The kind of tenant you get involved with will affect your success. Are they reliable? The best are those with solid credit ratings to public credit markets as rated by reputable organizations. This consideration is about establishing the fiscal stability of tenants that would impact how well they cover the rent and other penalties despite the financial situation and business performance. Higher credit balances and bankruptcies are indicators of insecure tenants. Analyze their current financial statement as they give a clear view on whether they will be able to manage costs.
When you have assessed the reliability of the tenant along with the Location, another thing to look into are the details of the lease in addition to the length. The best contract will offer you an extended period for agreement purposes. You are then sure of looking into more things that you could have left out guaranteeing stability. The other advantage is that of curbing all the loopholes which may allow for termination of the contract prematurely. Furthermore, have a broader look at the purchase contract and ensure that the rates are acceptable and have yet to be inflated by vendors. This comprises the analysis of the rent per square foot.
Most of the net leased investment have performed well in the past and it heavily relies on the ability of the individuals investing to consider the significant factors like the location and the tenant’s reliability. That way, diversification is enabled and hazard mitigated for all Economic conditions.