A diverse portfolio of commercial real estate investing often contains 3 types of investments:
- Value added investments that have room for improvements that can yield high returns.
- Secure single-tenant triple net investments in which the owner assumes no landlord responsibilities.
- Multi-tenant strip centers in which the owner assumes some landlord responsibilities.
Could one of these investments be right for you? Let’s take look at how you can profit from each one.
VALUE ADDED INVESTMENTS
These investments are great for investors who enjoy prospecting commercial real estate property that needs some improvements and tenant repositioning to yield the maximum return. Below are 5 ways in which owners of value added investments reap profitable returns.
- Fix up a partially vacant or fully vacant property that has a good location, and re-lease the property at a higher rate than before.
- Reposition triple net lease tenants in a shopping center to allow additional tenants to occupy space in the center for higher rent than current tenants pay.
- Give the parking lot and/or facade of a retail triple net shopping center a facelift and subsequently increase rent rates.
- Buy out triple net leases that are set at low rent rates and replace old tenants with new tenants that pay higher rent.
- To help increase sales, add new signage and/or cut down trees to give consumers a better view of the retail area.
Making these changes to commercial investment property can create property that is considerably more valuable than before. The owner can profit from keeping the real estate or selling/trading it to investors who become interested after improvements are made.
SINGLE TENANT TRIPLE NET INVESTMENTS
These investments typically involve property that an investment grade tenant occupies for a long period of time. Consequently, they are an excellent opportunity for investors who need a secure stream of income. Below are five benefits investors receive from these types of investments.
- The triple net lease transfers taxes, insurance, and maintenance to the tenant, leaving the property owner with no traditional landlord responsibilities.
- With no landlord responsibilities, the property owner can move to a different area without becoming disadvantaged as the owner.
- 10 to 25 year lease structures are common and allow the property owner to plan personal finances and other investments well ahead of time.
- Percentage annual rent increases are a common stipulation of the lease and help the property owner maintain profits despite inflation.
- The property is typically positioned in a prime location, which makes it easy for the owner to find a new tenant if the current one doesn’t renew the lease.
Before single tenant triple net investment property is purchased, the demographics, store sales, and years in business of the tenant must be carefully analyzed.
Westwood Net Lease Advisors will help you perform the analysis and find the right properties for your investment goals.
MULTI TENANT STRIP CENTERS
These investments can be major income producers for investors who have the tenacity and investment capital to take them on. Below are five aspects of owning a multi tenant strip center that can make it a valuable addition to your commercial real estate property portfolio.
- A center that has diverse retail tenants draws in a variety of demographics that synergize to increase the financial well being of all tenants.
- When one tenant is not doing so well, the success of other tenants helps pick up the slack and cushions the effect of the tenant’s lagging sales.
- With several tenants supporting the retail center and your net income, there is less chance of becoming financially burdened with ownership.
- Normal rent increases are typically built into the lease for triple net tenants in a strip center and help the investor profit despite inflation.
- The landlord commonly maintains the roof and structure, but triple net leases transfer taxes, insurance, and common area maintenance to tenants.
Investing in a multi tenant strip center can be a great move for investors who have reaped the benefits of single tenant triple net property investments and are ready to take on a larger piece of real estate that involves more landlord duties but has higher overall income potential.
