As we head into the New Year with an uncertain economic climate and an upcoming election, you may have some reservations about commercial real estate investing. However, owning a triple-net (NNN) lease property is a wise consideration for many reasons, including the recession-proof nature of the investment and the history of stability.
Look for These Types of Tenants
The key to owning a reliable, low-risk property that weathers economic ups-and-downs is to find the right tenant. The creditworthiness of the tenant is the #1 factor. The ideal tenant is an investment-grade corporation with a history of longevity and a proven record of staying profitable in all economic climates. For example, consumer-staple Dollar General plans to open another 1,000 stores and remodel 1500 existing stores in 2020 – they never stop adjusting to consumer and retail demands and continue to grow. Other net-lease businesses that are necessity-based and do just as well in tough times include fast-food restaurants, medical centers such as DaVita, and auto-parts stores like O’Reilly Auto Parts.
Additional net-lease investments tied to convenience and necessity include:
- Casual Dining
- Convenience Stores
- Dental Centers
- Dollar Stores
- Drugstores
- Urgent Care Clinics
The Right Location Matters Greatly
The combination of the right tenant in the right location can have a significant impact on whether your investment remains a good one in any economy, especially in a recession. That’s why the second most important factor is location. Your property should be in a highly visible location near main retail arteries and highways, as well as near other consumer staples like the pharmacy, grocery store, auto parts store, and fast-food restaurants. If the location is in a rural or secondary market, it should be prominent and easy to re-tenant when the lease expires.
Long-Term Lease for Added Stability
Lastly, but just as importantly, is the lease term. The reliability of a long-term lease with predictable expenses, or an absolute NNN lease with no landlord expenses, and pre-set rental increases provides fewer financial surprises and more stability for both corporations and investors. A 10- to 20-year lease ensures positive cash flow with the likelihood of rent increases built-in every so many years throughout the term of the lease as an additional hedge against inflation.
A Reliable Monthly Income & Strong ROI
Even in a recession, a NNN lease is a guaranteed contract with a high-credit tenant providing consistent monthly rent payments and preset rental increases for 10, 15, 20 years. Typically, these investments average 5% to 7% capitalization rates (cap rates) and depending on variables such as tax advantages and financing, an internal rate of return (IRR) from 10%-12% over time.
How to Find the Right NNN Property
Whether you’re new to commercial real estate or a seasoned investor, finding the right net-lease investment for your goals in the unpredictable economic climate of 2020 is best left to a professional Westwood Net Lease Advisor. We will help you choose from a selection of listed and off-market low-risk properties that fit your criteria, including some you may not have even considered. At no cost to you, we represent you from the property search to closing, and provide the following:
- Objective advice, education, knowledge, and advocacy.
- A detailed 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 a 1031 exchange and cost segregation depreciation.
- Explain lease terms, such as termination dates, opt-out clauses, common area maintenance charges (CAM), and more.
To Wrap it Up –NNNs Are Safe Investments in Any Economy
NNN properties are safe assets that reliably preserve cash flow and yield a dependable monthly income and overall return, even in times of economic uncertainty. Our goal is to help you acquire the right 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 offers a stress-free income. Contact us today for a no-obligation, free consultation and get the investment that’s right for you. 314-997-5227.
