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1 In my Net Lease Workshops for new investors or those unfamiliar with “Net Lease” I usually begin with an overview of the subject --- a brief definition of Triple Nets, what they are, why they are available, what kind of return to expect and, in general, how Net Lease works and differs from other real estate investments. Although not especially complex, in order to fully understand this investment strategy there are many areas to cover in detail. This overview will give you a foundation on which to build a complete understanding of Net Lease investing and to decide if it is right for you. Many large corporations prefer to lease rather than own their buildings for two reasons: they can only depreciate the cost of the building over 39 years and it remains as a long-term debt on their books. The monthly rent payment is written off as an annual expense on their tax return. Therefore they often have a building custom built and sell it with a long-term lease in place. The return to the investor/purchaser is excellent --- usually starting at around 15% to 20% and going up annually over the term of the lease because of periodic rent raises and the equity build-up. The Leases are called “Triple Net (NNN)”, which means the Tenant is responsible for all repairs and maintenance --- including capital items (roof, structure, parking lot, landscaping, etc.). In addition, he pays all property taxes and insurance. The Landlord has no expense or responsibility. Most investors will purchase a Net Leased property by leveraging their cash outlay --- putting twenty to twenty-five percent down and obtaining a long-term bank loan for the balance. The Tenant’s rent payment covers the mortgage note and in addition provides a steady, excellent monthly cash return. Leases are usually from ten to twenty years with additional option periods. The NNN property is invariably a single-Tenant free-standing building. And since it is occupied by an “investment grade” company such as General Electric, Walgreen Drug, KFC, Because of the financial standing of the Tenant, long-term bank loans are usually obtained at a more favorable interest rate and lower down payment than with other kinds of commercial real estate investments. This allows the investor to acquire the property with fewer dollars up front. In addition, the property’s potential rise in value over time because of its prime commercial location is a big plus. Although most investors prefer properties that are not more than two to three hours driving time from their homes, they will have a much larger selection of currently available properties if they can include other cities in which they have business occasionally visit, or to which perhaps they would eventually like to retire. |