A highly popular type of commercial property investments are NNN properties.
These are typically retail properties leased to a single tenant with a high credit rating using a triple net lease (NNN lease) which means that the tenant is responsible for paying real estate taxes, insurance and maintenance costs. (A high credit rating is a BBB or better by Moody's or Standard and Poor's.)
Examples of commonly recognized NNN properties are:
• Drug stores like Walgreen’s, CVS or Rite-Aid
• Drive-through restaurants like KFC, Carl’s Jr., or Burger King
• Convenience stores like 7-11 or Circle K
These investments are solid investments because they are typically new or nearly new, and have a quality tenant on a long term lease (usually 10 to 15 years), attractive financing with non-recourse loans, minimal or no management responsibilities, stable cash flow, and the numerous tax benefits that only real estate can provide.
However, you need to know that these investments are not “risk free” and require a certain level of understanding. Things to be aware of include:
• the tenant’s credit rating
• the overall financial stability of the tenant
• the location of the property, traffic counts and demographics
• local market conditions
Questions to ask:
• Is the property a single purpose building or is it easy to renovate for another use?
• What is the overall quality of the building?
• Are there deferred maintenance items that may require cash outlay in the near future?
• What are the specifics of the lease terms?
• Is there upside potential to the property?
Getting help from a local commercial real estate broker, an attorney and an accountant can help you to understand all of these issues so that these deals can be solid assets and you can be well positioned to build wealth over the long term. Always remember that this is still real estate and the fundamentals do apply.
NNN properties can be an excellent addition to your portfolio, producing returns of 10% and more, with the safety of a corporate bond. With the proper due diligence, they're a long-term safe investment.
If you would like to explore this type of investment, please contact me at David@commercial-real-estate-information.com. I specialize in NNN properties and would be happy to give you more information.
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