Entering into the world of commercial real estate investing can be overwhelming. What type of asset should you be looking to buy – office, medical, retail or industrial? What locations are the best – primary or tertiary marketplaces? How does the economy impact these assets? What are the different levels of risk with each? And just how much do I need to get started? Do you invest on your own or do you join a real estate investment group or real estate investment trust (REIT)?
This list of questions may seem unending and making the right decisions may seem to complicated. Why invest in real estate at all? As opposed to the volatile stock markets, real estate can enhance the risk and return profile of an investor’s portfolio. As an investor in commercial real estate, you tend to avoid the rapid fluctuations in the marketplace, and maintain a more sound, long term investment. Returns may not be at 10%, but with an an average cap rate between 5.50% and about 9.0%, real estate can be a reliable, steady source of income.
At Calkain, we’ve chosen to focus solely on single tenant net lease (STNL) for our client’s real estate investing and for good reason. Single tenant net lease assets provide a stable source of passive income, with little to no management responsibilities. In 2016, according to the Calkain research group, the average cap rate for single tenant net lease investments was 6.45%. Not quite as high as the 9.0% rates you can achieve in other real estate asset classes, however, there’s a whole lot less work involved and a similar reduction in risk exists.
Let’s explore this a bit. One of the primary benefits of investing in the net lease sector of commercial real estate is that you can shift the burden of management and expenses over to the tenant. Often referred to as an absolute triple net (NNN) deal, this type of asset allows the owner to basically sit back and collect rent each month. Literally, all insurance, operating costs, maintenance and repairs can be shifted to the tenant in a true NNN deal. Even in a double net (NN) deal, although one aspect of expenses, generally either taxes or structure maintenance revert back to the owner, but all other management hassles stick with the tenant.
And that’s one big advantage of real estate investing in net lease. A second is that compared to investing in US Treasury bonds – a true hands-off type of investment, your return on a net lease deal will be consistently higher. At the end of 2016, US Treasury Bonds were trading around a 2.25% return, while net lease was averaging 6.45%. A 4 point difference in returns, with a nominal amount of additional work.
To learn more about real estate investing and the benefits of investing in the net lease market, please visit our site at www.calkain.com or reach out to us directly at 703.787.4714. We’d be happy to explore the marketplace with you and match you with the best investments.Real Estate Investing