Commercial real estate requires tenants to pay rent and net lease. These expenses would get paid by the landlord if there are no tenants. They include, insurance, maintenance and repair, utilities, property taxes and others. The tenants are given a written lease indicating the items that are to be paid. This guide will provide all you need to know about net leased investment.
The first step is identifying the person who will guarantee the lease. Corporate guarantees are usually the most preferred. It is risky to choose individual guarantees. The lease structure and terms are of importance. A 20 year lease is much better than a 5 year one if a tenant remains to be the same. It is wise to note down all options that the tenant has. If the end of the lease is approaching and there are no available options, then you will have to negotiate the lease in case the tenant says they want to stay. To avoid this, many people prefer longer options with long base terms.
Secondly, the location of the property will determine if it is re-leasable in case the tenant leaves. In order to get the best location, tenants are usually willing to pay more than the market rate. Fast food are much faster to re-lease as opposed to distribution facilities. If a tenant makes payments way below the market rent, it is easier to replace the rent in case they vacate.
It is vital to have an exit strategy 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. You may love your business idea but it fails to add value to the area investors, this will in turn limit the buyers if you decide to sell. Get to know about all this before you get into net leased investment.
It is also vital that you get to know of rent escalations ahead of time. Get to know the percentage and frequency of escalation. 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. It is important to check the credit rating of the tenant. This will give you a sense of stability. There are companies that offer advice on finding property that is right for your investment. It is important to do research to make sure you get profits from net leased investments.