Truth be told, there is really no safe investment in real estate. There are, however, investments with less risk, and STNL (Single Tenant Net Leased) properties are a strong leader. A STNL property is typically structured under a triple net lease. Under this type of lease, the tenant is solely responsible for all costs relating to the leased asset, above and beyond the base rent. This includes real estate taxes, building and liability insurance, and maintenance and repairs. Generally, a new STNL lease will be for a longer term (15–20 years) with options to extend and increase at set periods (either annually or every 5 years). This limits the chance for income fluctuations and allows an investor to really know what their expected income and return projections will be for a long period of time.
Acquiring a STNL can be a more secure investment when you have a strong tenant. You can get a local operator, a regional operator, or a national credit tenant.
A local operator can be an individual that has one location or a few locations. These are the riskier of the three, as the smaller operators are more susceptible to the local market fluctuations. To offset this risk, though, many operators will cross-collateralize their lease with the other locations, and many times, they will also offer a personal guarantee on the lease.
A regional operator is a company that has several locations in a state or region of the country. These operators usually have a good amount of experience and can be less riskier than local operators because they are spread across a larger area and, in many cases, have higher volumes, which allows them better pricing on their goods purchased and therefore better operating margins. Many regional operators can be just as strong as some national operators.
A national credit tenant is someone like a 7-Eleven, McDonalds, or Walmart. These can be the safest investments of the three if the leases are backed by the parent corporation. Be aware of national or international companies with only the franchisee as the guarantor, but don’t discount them as a safe investment, as many franchisees can be as strong and as large as some comparable national companies. The price fluctuations on triple net leases across different regions of the country can vary widely, so be sure to speak with a broker that knows the NNN market place.
These three types of STNL investments are good for investors of any level. As a new investor, it’s a good investment option due to its stability and will help build a solid foundation for your investment. A more seasoned investor will want NNN as a means of wealth preservation as they have created their wealth and do not want to risk it.
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