What should you look out for in a net lease investment?
Net lease investments are popular for their relatively low touch management, long-term leases, high-quality tenants, and financing availability. Savvy investors look for investment-grade tenants with a history of longevity and a proven track record of staying profitable in all economic climates. During the due diligence phase, it is essential to review the structure, payment, and expiration of the lease(s) to differentiate a good investment opportunity from a bad one. One wrong move in this phase could lead to an under-performing investment down the road. It is essential to understand the tenant and how they operate to maximize investment opportunities.
When determining potential acquisition targets, investors should look at both the physical features of the property, such as location and condition, as well as analyze the features that aren’t seen on the surface. This includes the lease for the property’s existing tenant. Understanding the lease structure and type, rent payments, expiration dates, among other things is critical to creating financial projects for the property and estimating potential returns. Further, because of the uniqueness of a net lease structure, there are several components investors should look out for when seeking opportunities in the net lease space.