Are Triple Net Leases Recession-Proof?

Jan 29, 2019

If you are an investor considering commercial real estate, a triple-net lease property is a wise consideration for many reasons, one of those reasons being the recession-proof nature of the investment. NNN properties are safe assets that reliably preserve cash flow and yield a dependable return, with guaranteed passive, or “hands-off lease management,” income from anywhere in the country.

“When you own stocks or bonds the value of the investment lies strictly within a piece of paper promising repayment or income. When you own a NNN property there are multiple guarantees bolstering the asset – a lease with a strong tenant promising to pay a guaranteed rental income stream and the tangible underlying real estate value adding another layer of security to the investment.”

– Jason Simon, Vice President, Westwood Net Lease Advisors

Stock Market & Other Investments vs. NNN

The stock market is at the mercy of economic perceptions, predictions, and interest rates. It varies minute-by-minute, making it difficult to know what your ROI will be in one year, ten years, or even twenty years. You could lose as much as you gain, with no control over the outcome.

Though residential homes and apartment complexes can yield a good return, there are also many market-driven variables, much like the stock market – employment strength, interest rates, and economic trends – that can make your ROI change dramatically from year-to-year. There is also the added risk and responsibility of low-credit tenants, high turnover, and management headaches. A loss in value can last for years and be considerable.

With the wild fluctuations in the stock market and unpredictability in residential housing, especially in times of a looming recession, investing in NNN-leased real estate can offer reliable, predictable ROI for decades, regardless of the economy.

A triple net lease is a guaranteed contract with a high-credit tenant with consistent monthly rent payments and preset rental increases for 10, 15, 20 years. Typically, these investments average 5% to 7% capitalization rates, depending on certain variables, and an internal rate of return (IRR) from 10%-14% over time.

Triple Net Leasing to the Right Tenant is Key

The combination of the right tenant and the right location can have a significant impact on whether your NNN investment remains a good investment, not only in a strong economy, but also during a recession.

When looking at investment properties, there are several factors to consider that lower your risk and create a balanced long-term return. The right tenant is #1 on the list.

#1 – The reliability and creditworthiness of the tenant – is the tenant a franchise with a history of longevity and can it still do well in a recession? Look for a logical business that can stay profitable in a recession. For example: which would perform better during a downturn in the economy – a Ruth’s Chris steakhouse or a fast-food restaurant such as KFC, Hardees, or McDonald’s? What about high-end shopping like Nordstrom versus Dollar General or Family Dollar?

#2 – The quality of the real estate – is it a trophy location? It should be a visible location near other consumer staples like the pharmacy, grocery store, auto parts store, and fast-food restaurants. If the location is in a secondary or tertiary market, is it prominent? Will it be easy to re-rent when the lease expires?

#3 – The term of the lease – a 10-, 15-, or 20-year lease ensures long-term positive cash flow. Many tenants also have rent increases built in every so many years throughout the term of the lease as an additional hedge against inflation.

Look for These NNN Tenants

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Look for businesses tied to lifestyle trends and necessity versus those tied solely to economic cycles. Good examples are dollar stores, drugstores, banks, medical, casual dining, and fast-food chains like McDonald’s and Dunkin Donuts. These also fit the three most important criteria and have proven, even in tough economic times, their ability to stay profitable. Dollar General is planning to open nearly a thousand stores in 2019 – keep an eye out for businesses that are adjusting to retail demands and continue to grow.

How to Find the Right NNN Property

nnn property for sale search

Whether you are new to commercial real estate or a seasoned investor, finding the right NNN investment for your goals is best left to a professional net lease advisor who gets to know you and truly values your best interests.

Online searches and do-it-yourself deals can lead to conflicts of interest and a less than positive experience, potentially leading to a negative financial outcome. By working with a Westwood Net Lease Advisor, you will realize a seamless investing experience that fosters confidence in the process and your NNN investment decision.

The Benefits of a Net-Lease Advisor

NNN investment lease advisor recession-proof investment

Your Westwood Advisor will work hard (so you don’t have to!) to find an investment that fits all your criteria, including some you may not have even considered. We are objective and do all of the following for clients at no cost to a buyer.

  • Offer objective advice, education, knowledge, and advocacy – all without any cost to you!
  • Perform an evaluation and a risk tolerance assessment.
  • Explore the best price and cap rates and different classes of investment opportunities.
  • Evaluate tenant financials and credit ratings.
  • Work with you on the many detailed financial and tax considerations, like 1031 Exchanges and cost segregation.
  • Help you navigate the lengthy and complicated documentation, which differs from state-to-state, city-to-city, and municipality-to-municipality.
  • Explain and explore termination dates, opt-out clauses, common area maintenance charges (CAM), and more.

“Westwood prides itself in going the extra mile for its clients, whether large or small, and making sure the deal is right for their specific needs and investment or tax planning goals.” – Vince Vatterott

To Wrap It Up

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Our goal is to help you acquire the right NNN investment with ease – regardless of the economic forecast – and assure there are no surprises during the first year of ownership, giving you a truly passive, recession-proof investment that brings a joyful return. Contact us today for a free consultation.


*Note: Westwood Net Lease Advisors has made every attempt to ensure the accuracy and reliability of the information provided. Westwood Net Lease Advisors does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained herein. We are not lawyers, accountants (CPAs), or certified financial planners, nor is the information herein considered legally-binding legal, tax, or financial counsel.

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