If you’ve been involved in real estate even a short period of time, you’ve likely heard of turnkey investments.
In residential real estate, this usually refers to properties that are already maximized for profit potential; specifically, single family houses with high asset value and tenants already in place. The property is usually managed by a property management company so the investor has little to do other than collect a monthly check.
What you might not realize, however, is that triple net lease properties offer the same benefits as a residential turnkey – with higher profits and greater long term stability.
No Management Responsibilities
Residential properties marketed as turnkey properties actually do have plenty of management responsibilities – they’re just handled by a property management company.
Other than the issue of finding a reliable property management company (not a small issue) the reality is that your property’s manager will need to contact you on a regular basis.
As an owner, you’ll need to be kept in the loop about property inspections, sudden repairs over a specified sum of money, vacancies, and other typical responsibilities associated with owning a property.
Failure to hear from your property manager isn’t a sign of a carefree property: it’s a warning sign that should make you worry they aren’t doing their job.
Triple net properties, on the other hand, are the only type of property that is truly management-free. That’s because you don’t need to hire a property manager: the tenant is responsible for all repairs and maintenance on the property.
Since these are single tenant properties with high-quality tenants, there’s no need to worry about whether your tenant will pay. You’ll receive a monthly check like clockwork.
Triple net lease properties are investment grade properties with long term leases. That means tenants are large national companies with strong credit ratings and low risk of default. Leases are a minimum of 15 years, but often last as long as 20 or even 25 years.
Long-term leases like these offer greater stability and act as a buffer during economic times that smaller companies would find challenging.
These factors are also attractive to banks and other lenders, making it easier to get better financing terms. This can save you quite a bit of money. As an investor, there’s nothing like being able to choose a well-known tenant like:
- AutoZone, or
- Dollar General.
Triple Net Leases Are Easy To Find
Residential turnkey properties are harder to find than you’d imagine. While there are some investors who are willing to take on lower quality properties in order to add equity through renovation, many more are searching for a property that can produce profit right out of the gate.
Since there are many more residential real estate investors than there are commercial, that means there are numerous investors competing for properties.
Triple net lease properties, on the other hand, are easy to find. Since there are fewer commercial real estate investors but a wide variety of net lease properties, it’s easy enough to find a great property with steady returns.
Also, because there are no management responsibilities, you don’t need to be limited by location. You can purchase a property anywhere in the continental U.S., and the only time you’ll actually need to visit is during the initial due diligence period.
Great For Diversifying Your Portfolio
Whether you own single family homes, retail, multi-families, warehouses or offices, triple nets are an excellent way to balance out your portfolio. With an average 6% return – which is far higher than the 1% other investments will give you – they provide stability in a volatile market.
And while experts in residential turnkey properties suggest building out your portfolio to dozens of properties, one triple net property has the potential with the same profit potential, without the hassle.
You Maintain Control Over Your Investments
REITs allow you no control over the properties you invest in. You also have no control over the price of the shares of a stock and in some cases, even the company you invest in.
Triple net lease properties allow you to maintain full control of the property.
You choose the type of property and the location. Keeping track of expenses and income is simple – there are no expenses, and figuring out your income is as simple as checking your bank account.
Decrease Capital Taxes
Triple net properties are ideal vehicles for taking advantage of 1031 exchanges. 1031 exchanges are a legal way to defer capital gains taxes when selling a property. By purchasing a replacement property for the same amount or higher as the original property, you can roll over money from the sale of one property into the purchase of another.
Creditworthy tenants, lease length, and rent bumps make triple nets an ideal property for 1031 transactions. Plus, commercial properties also let you claim depreciation for the property.
No Need To Renovate
Nearly all other types of properties require you renovate a property in order to accommodate new tenants. Triple net leases are the only commercial property where the tenant is responsible for any renovations to the property. This saves investors a significant amount of money that would otherwise come out of the property’s cash flow.
Triple net lease properties are an excellent way for investors to diversify a portfolio without requiring a huge chunk of time in order to be successful. Whether you’re new to real estate investment or already maintain a large portfolio, net leases have something to offer for everyone.
Interested in selling or purchasing a commercial real estate property? Click here to schedule a free 15-minute strategy session to discover how to create wealth through low-risk property investments.Tags: 1031 exchanges, cash flow, investment grade properties, residential properties, single family, tenants, triple net lease properties, triple net properties, turnkey investments