Widen Your Grasp In Leased Investments
The primary aspect of certain lease structure is investment grade, long term net leases. Long term on the other hand indicates the general length of lease and the net leases refers to structure of these lease obligations.
I recommend you to read the next lines if you wish to learn more about these subjects.
Number 1. Investment Grade – basically, this lease is lease to tenants that maintain credit rating of Better Business Bureau or even higher. The investment rating is then represented by the ability of the company to repay its obligation. BBB is representing good credit rating according to the agency’s ratings. Most of the time, only bigger, national companies are able to maintain good credit rating.
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Both franchise and regional tenants are small for rating agencies to monitor. With this in mind, it is suggested that the lease is corporate backed by parent company and isn’t just regional franchisee. There’s a huge difference between the strength and credit of regional franchise owner and the actual corporation itself. Corporate parent will generally provide better rent stability in midst of economic downturn while rent stability is equivalent to improved stability for the price and value of your real estate.
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Number 2. Long Term – as for long term, it is usually fixed length obligation in lease term or beyond ten years. There are advisors or brokers that can also include lease option as part of fixed lease term. It is vital to distinguish between obligations and options. If for example the tenant is offered an option to renew for additional 5 years after the initial 5 year term, the lease term ought to be considered as 5 year lease with additional 5 years in option and not a 10 year lease.
As a client, you must find out the rent terms and on how long the tenant is obligated to pay because it makes a significant difference when you start considering your returns, risks, ability to acquire financing and also your ability to resell property for profits.
Number 3. Net Leases – there are two types of leases wherein it’s the tenants who are responsible for operating expenses which include the structure, insurance and the roof and these are Double Net or NN and Triple Net or NNN leases. Pure NNN lease that covers such costs via the term of lease is typically referred as absolute NNN lease. Then again, there are those who call it as Triple Net that don’t include expense on roof or structure of the building. These leases are known precisely as modified NNN or double net NN leases.