Triple Net Lease (NNN) properties in Fort Lauderdale
Tired of being a residential landlord and dealing with tenant issues? Are you spending more time maintaining your investment property than you ever thought possible? One of the trends I'm noticing is an enormous interest in Triple Net Leased properties, also referred to as NNN lease properties in Fort Lauderdale. The benefit of owning a NNN property is that the tenant has to deal with all expenses and maintenance issues that a property can have. A good amount of the interest in Fort Lauderdale NNN properties is coming from buyers pivoting out of a property outside Florida, and moving the money down here. Generally speaking investors do this for tax reasons, often as part of a 1031 exchange. What's fueling the rise in NNN interest around Fort Lauderdale, and the sector as a whole, and could this be the right investment for you? Let's find out!
What is a Triple Net Lease? It's a lease structure where the tenant pays for the three big expenses in real estate; the property taxes, the insurance costs, and the costs to maintain the building. This leaves the actual owner only having to worry about lease renewals, and little else. The key to these deals is really two fold in my opinion. First, you need to remember you're actually buying a piece of real estate. If the location of the real estate is poor it won't matter what the underlying lease details are, you're still buying a poorly located piece of real estate. If your tenant does not renew their lease, and you own in a poor location, things aren't looking good for you.
The second thing you need to consider is the credit quality of your tenant, and the actual lease terms. Remember, the tenant is responsible for all expenses. That being said, if their business is on the downswing and they can't afford to pay your property taxes or properly maintain your building, you could be in some trouble. You know the names well of companies that often offer NNN leases; Lowes, Walgreens, CVS, 7-Eleven, McDonalds, Family Dollar, Starbucks, Good Year, Chili's, Sherwin Williams, Denny's, Kohl's, Applebee's, Petsmart, Verizon, Chase, Bank of America, Wendy's, Best Buy, Publix, Dunkin Donuts, TD Bank, just to name a few! The companies brand name is often what attracts investors initially. Credit quality, stability of the underlying business, and strength of the underlying lease is really what drives the cap rate an investor will demand. Lower credit quality tenants that have been in business a shorter period of time won't be as attractive as a company that has a long track record of making timely lease payments. A lease nearing the end of it's term often times will not be as attractive as a property that has just signed a new 20 year lease.
There's a lot of capital chasing a net leases, which has led to cap rate compression. My opinion is we've really compressed down as far as I believe we will go. I believe this sector of the market is only going to grow down the road, but I don't believe investors are going to accept net yields that are much lower than they currently are. High credit quality tenants carry with them the perception of little risk. This can be ideal for someone overseas looking to own property in the US without having to worry about management of the property. It can also be ideal for someone that's just tired of being a landlord, but wants to stay invested in the real estate market. Florida is an ideal state to acquire a NNN property because we have no state income tax.
Deals are straightforward but hinge on the lease and how it's written. A number of companies are willing to do sale leaseback transactions so they can move the real estate off their books. What's not really being talked about is why NNN is all of a sudden emerging. My opinion is that you had companies that owned enormous amounts of real estate which was reflected on their balance sheets. When the housing market tanked the stock price of companies which owned huge amounts of real estate went down as well. Sometimes the dip in share price had to do with the valuation of the real estate a company owned, and not the companies business itself. I look at this as one of the basic reasons that companies are now looking to shed the real estate they own and be on the hook for a lease, which is a more predictable expense. Additionally if a company sells real estate, and then leases it back, it's a very effective way for them to raise capital quickly without having to add debt.
As I said earlier in this post, a NNN lease is a piece of real estate and location is still what drives the assets value more than anything else. When dealing with NNN properties I expand my area out to all of Broward County. I would like to stick to just Fort Lauderdale, but scarcity of supply has me take on a larger area than I normally would. If you're looking to purchase real estate for investment but don't want the responsibilities that typically come along with ownership, lets talk about purchasing a NNN leased property.
I work as a Realtor in Southeast Fort Lauderdale. If you’re interested in buying or selling a home, condominium, or townhouse (townhome) in: Rio Vista, Victoria Park, Downtown Fort Lauderdale, Fort Lauderdale Beach, Sailboat Bend, Tarpon River, Croissant Park, Collee Hammock, Wilton Manors, Oakland Park, Poinsettia Heights, Coral Ridge, or Las Olas Isles, please feel free to contact me at (786)443-7203 or through my email email@example.com. I am a Realtor that works on Saturdays in order to accommodate those with busy schedules.
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Written By Casey Prindle