What Is A Single Net Lease Property?
Single tenant net lease properties are net lease properties leased by only one tenant. The freestanding property can be a retail, industrial, or office building, and because it is a net lease, tenants pay repairs and maintenance, property taxes, and insurance.
Tenants are either national tenants such as Starbucks, Walgreens or AutoZone, or a franchise owner who signs a 10 to a 25-year lease and agrees to take on all management responsibilities associated with the property. Often leases are full triple nets, assigning all operating and management expenses to the tenant.
How Do Single Tenant Properties Differ From Multi-Tenant Properties?
Multi-tenant properties are occupied by more than one tenant. Each tenant signs its own lease, with the owner responsible for maintaining the property, and for paying operating expenses, property taxes, insurance, and any other expenses associated with the property.
Although multi-tenant properties can potentially bring in a larger stream of income for investors, they require a significant amount of management, have more potential for vacancies, and are more susceptible to the ups and downs of the economy since tenants don’t sign long leases.
Owners must also invest more money in wooing new tenants, renovating the space to suit each new occupant, and offer incentives to decrease vacancies and fill the space as quickly as possible.
There is also the added burden of a higher tenant turnover rate in multi-tenant properties and the costs associated with not only finding and screening new tenants but remodeling and cleaning each unit every time a tenant moves out and a new tenant moves in.
Single tenant net leases, on the other hand, are handled almost completely by the tenant. And because these tenants are required by the parent company to keep the property in tip-top condition, you can rest assured that your property will remain in excellent condition throughout the duration of the lease.
What Are The Benefits Of Investing In Single Tenant Properties?
A steady stream of income -Single tenant net lease properties are essentially turnkey investments. They provide a steady stream of cash flow that can be counted on month after month, year after year.
No management responsibilities – The minimal responsibility required by these properties make them an ideal investment for retirees, busy professionals, new investors, or investors simply looking to add a hassle-free property to their portfolio.
No capital repairs– Unlike multi-tenant properties, single tenant net lease owners are exempt even from capital repairs, which over time can add up to a hefty sum. This allows the owner to spend both his time and money on other investments.
Easier to obtain financing – Single net lease properties are viewed by lenders as stable investments. This, in combination with the fact that lenders look at the value of the property rather than your personal credit, means you can purchase a property fairly easily.
Lenders also offer better financing terms for single tenant net lease properties. That’s because a single tenant net lease is backed by the tenant’s credit instead of the value of the property.
Less susceptible to economic downturns – Single tenant properties are offering a reliable income even during a weak economy. The strong credit of an industrial tenant and long lease combine to create a recession-resistant property. Multi-tenant properties, on the other hand, are quite sensitive to both national and local economic fluctuations.
Industrial-grade tenants -Single tenant net lease tenants are well-known companies, rated by third-party sites like Standard and Poor or Moody’s. This means investors can examine both the parent company and the franchise operator in order to determine whether or not the prospective tenant meets their financial criteria.
Single Tenant Net Leases Are Reasonably Priced and Highly Liquid
Because properties are management-free, investors aren’t limited to properties in their own state. Instead, you can choose from hundreds of properties across the country.
And because many properties in this asset class start off at just $500,000, you can add a net lease property to your portfolio for just $150,000 down. At the same time, if for some reason you need to divest yourself of an asset, STL’s are easy to sell.
What Are The Risks Of Investing In Single-Tenant Net Lease Properties?
All investments present a certain amount of risk; it’s impossible to get returns without it. In single tenant net lease properties, the biggest risk is of a tenant going out of business, leaving you responsible for all the expenses associated with the property but without the cash flow, it would normally generate.
Fortunately, analyses show that single tenant properties present low risks to investors, with only a small fraction filing for bankruptcy or unable to pay rent.
You can lessen the risk even further by choosing investment grade tenants with a credit rating of at least BBB or higher, and by ensuring the parent company is responsible for the tenant in case of non-payment.
Should You Invest In A Single Tenant Net Lease?
Single tenant net lease properties are ideal turnkey properties. Whether you’re looking to diversify your portfolio or simply would like to add a no-hassle income stream, net lease properties are the ideal investment.