Things to Keep in Mind When Purchasing a Triple Net Property
If you’re looking for a real estate investment opportunity, then purchasing a property with an existing commercial tenant under a triple net lease may be a good way to go. This form of investment provides a readymade passive income stream for the purchaser, but it is important to take a few things into consideration before making a purchase. After reviewing the below information, you should contact the experienced attorneys at Adam Leitman Bailey, P.C. for further counsel on whether purchasing a triple net property is the right move for you.
1 – The Tenant’s Credit
As mentioned already, one of the main things that makes a triple net property an attractive purchase is the passive income produced by the tenant’s rent payments. However, you don’t want to end up buying a property with a deadbeat tenant who never pays rent. Therefore, it is advised to inquiry into the tenant’s credit, as good credit is usually a sure sign of a timely payer of rent. You should also require the seller to provide an operating statement for the property indicating its financial performance, as well as any financial information regarding the tenant that the seller may have.
2 – Location, Location, Location
After ensuring the creditworthiness of the current tenant, the next important consideration is how attractive the property will be to future tenants. Nothing lasts forever, and the time will likely come when you need to find a new tenant, and you want to invest in property that you know can be re-rented easily. This means you want to look for property that is easily accessible by road, has ample parking, and can be seen easily by passersby. You also want to avoid property that is too specially modified for the current tenant, as this may make it unusable for other tenants without costing you a considerable sum to alter the space.
3 – Make Sure You’re Actually Getting a Triple Net Lease
A true triple net lease will require the tenant to pay all taxes, utilities, common area maintenance costs, comprehensive property maintenance. The fact that a triple net lease places all of the costs on the tenant is what makes it such a great passive income source. In other types of leases you, as landlord, would be responsible for many of these costs and maintenance duties. Therefore, it is critical that you have a qualified real estate lawyer, like Adam Leitman Bailey, P.C., review the lease for you before you commit to the transaction. Otherwise, you may find yourself playing landlord a lot more often than you were bargaining for.
4 – Know how Much Time is Left on the Lease
If you’re not particularly savvy with reading legal documents, this is another area you should have a lawyer review for you. Essentially, if the remaining term of the lease currently in existence when you buy the lease is short, then you are buying yourself short-lived passive income and potential headaches with re-leasing. Therefore, you want to keep an eye out for properties with a longer remaining term on their triple net lease. This way, your passive income won’t be abruptly cut short immediately after purchase.
5 – Be Sure to Hire A Lawyer
This came up under some of the other sections above, but it is important enough to warrant reiteration in its own section. A real estate lawyer is a vital resource in all real estate transactions, not only for the reasons mentioned above, but for the host of other issues that can arise during the purchase of real estate. A good lawyer will be able to ensure that your interests are protected during and after the transaction.
Purchasing a property with an existing triple net lease can be an excellent investment vehicle for both veteran and novice investors. As long as you keep an eye out for the issues mentioned in this article, and hire a good lawyer to watch your back, you could profit handsomely.