Real estate has become the largest sector of the US economy over the last 50 years. The real estate sector currently composes 13.1% of the United States’ GDP, and produces $2.4 Trillion annually. The popularity of real estate as an investment stems from the tangible nature of the assets purchased, and the security provided from long term leases. Real estate has become one of the largest asset classes in the world, and investors have begun to recognize single tenant net lease (STNL) properties as one of the best investment types available. These properties have minimal landlord obligations, as the tenant pays for utilities, property taxes, insurance, and often times the common area maintenance and roof.
Although STNL have increased in popularity, investors continue to err when purchasing and selling properties. According to Calkain’s in-house team of net lease experts, there are three common mistakes investors make when buying or selling their NNN lease properties.
- Investors do not surround themselves with professionals who specialize in STNL properties. When purchasing or selling a net lease asset, it is important to ensure you are receiving the full value of the property. Paying a small amount now to employ seasoned professionals, is worth avoiding a large loss in the future. These professionals see hundreds of properties every day, and will be able to notice irregularities that the layman may not catch.
- Purchasers and sellers of STNL properties fail to look at current real estate values of similar properties in the market. You may be told that you are getting a great price for a property, but you should verify the price with the closest comparable sales you can acquire. A Wawa at a 5.25% cap rate, could possibly be purchased at a 5.50%.
- Owners of net lease properties fail to correctly analyze the credit of the tenant. Despite both being “Investment Grade”, there is a vast difference between a BBB+ S&P rating, and an A+ rating. Make sure you properly analyze the financial statements of the guarantor to ensure they will continue as a going concern for the term of the lease. An additional resource for examining tenants can be found at netleaseadvisor.com.
The failure to acknowledge these three factors can cause potentially great investments and end up costing enormous sums of money. When you are purchasing a net lease asset worth millions of dollars, it is worth paying a little up front to ensure you are receiving the best deal possible.