Risky Triple Net Income Property
Some businesses are not suitable to be triple net lease tenants, especially not when the economy is tough, and consumers and businesses rein in spending. If you are considering investing in triple net income property in New York, now is a GOOD TIME to do it. However, with the recession still fresh in people’s mind, you have to be careful about the type of tenant that occupies the property you buy. While there are always exceptions to the rule, below are types of businesses that tend to be bad triple net lease tenants in a tough economy.
INDEPENDENT RESTAURANTS
By their third year in business, nearly 60% of independent restaurants FAIL. In many cases, the reasons for failure are threefold:
- Not enough capital is raised before the restaurant opens.
- The owner is skilled at creating cuisine but not business.
- The proper marketing measures are not implemented.
If you want to own a restaurant property, investing in one that has a fast food tenant such as McDonalds is typically the best idea. Unlike independent restaurants, a corporation that has lots of capital, is skilled at business, and has a professional marketing department usually backs successful chain restaurants.
UPSTART RETAIL STORES
A whopping 80% of retail stores fail within five years of opening. One of the main reasons why is the fierce competition in the retail market. Stores that have great locations generate enough income to roll out impressive marketing campaigns and beat up on stores that don’t have great locations and earn less income.
If you must own a retail property, target one that has a profitable business context. For example, owning a storefront space in a fashionable district that a GAP store occupies predicts more success than owning a space in a less fashionable district that has an upstart retailer as a tenant.
WHOLESALERS
Only 54% of wholesalers are operating after four years; one of the main reasons why might surprise you: too much stock and not enough buyers. Even when wholesalers offer their goods to the public in addition to businesses, supply often outweighs demand—a scenario that slowly strangles the bottom line.
With that said, there are some wholesalers that consistently experience high sales and a generous net operating income, and thus make good triple net lease tenants. If you would like to own a wholesaler property, investing in one that a big name, successful seller such as Costco occupies is a good option.
