If you have enough budget, investing in NNN properties is one of the best decisions you can ever make. That’s so because this leasing model offers tons of amazing benefits for investors; one of them is that it allows them to achieve a steady income stream. As with other investment types out there, investing in the NNN leasing model requires you to consider a couple of factors before getting started with it. As you read on, you’ll find the key factors to consider before investing in NNN lease property, including how to find the best properties on Net Lease World.
Factor 1: Check and confirm the creditworthiness of the tenant
One factor that influences the value of any commercial real estate (CRE) is “tenant.” For a modified triple net lease investment, the tenants will pay the base rental amount. In addition, they’ll also pay almost all other expenses, including utilities, taxes, maintenance, and insurance, depending on the agreement between the two parties. Since that’s the case, it’s important for investors to thoroughly vet tenants when purchasing an absolute triple net lease property.
Today, one way to get and confirm the creditworthiness of a tenant is by using the S&P Global rating approach. S&P (or Standard and Poor’s) is a global rating for evaluating commercial real estate properties. The S&P ratings range from AAA to D. These ratings will provide you with information regarding whether the tenants are capable of meeting their financial commitment within a certain period. Alternatively, you can consider using Moody’s Investors Service approach or Fitch Ratings.
Factor 2: strength of the lease agreement
Investing in a NNN property doesn’t mean you’re buying the property. Instead, it means you’re buying the least. Since that’s the case, you need to consider the strength of any NNN lease agreement before acquiring the property.
As an investor, when buying a property, you don’t have to assume that the leasing model is an absolute triple net lease. Instead, you need to carefully analyze the agreement and understand exactly what it includes.
Will the lease focus on certain periodic rent increases? Is there any provision in place for inflation? Is the NNN lease absolute or ordinary? Try and confirm all these factors before agreeing to purchase the property.
Factor 3: consider inflated leasing rates
The last key factor to consider is “inflated leasing rates.” In most cases, you might end up seeing tenants that’ll pay more than the current market rates. But don’t let this get to your head as an investor. Here’s why:
You need to understand that if the tenant pays more than market rates, it’ll also have a direct effect on the sale price. More money from the tenant means you’ll also pay more money than expected for the sales price.
To avoid this issue, it’s important to analyze the lease market and ensure the tenants pay accordingly. Sometimes, getting correct data can be pretty difficult. This explains why you need to speak to experts at Net Lease World before purchasing a property. Interestingly, you’ll also get access to a search option, which will allow you to find some of the best triple net lease properties for sale.
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