NOT YOUR GRANDMA’S NET LEASE REAL ESTATE
DIVERSIFY YOUR PORTFOLIO WITH MODERN TRIPLE NET PROPERTIES
Real Estate Is The World’s Most Proven Asset Class
Real Estate investing is one of the oldest ways to invest, dating back thousands of years as a holder of monetary power and wealth. It has intrinsic value as a competitive hard asset and can be bought, sold and traded.
With markets changing and new businesses popping up around the world, real estate has also expanded to meet the needs of the consumer. Retail, gaming and restaurant properties, to name a few, give investors the opportunity to not only invest in passive-income generating assets but also offer the added bonus of having a stake in lucrative, trendy markets.
Though you can stick with the traditional Net Lease Quick Service Restaurants, convenience stores and family offices, why not invest in something that gives you solid returns AND that you can show off to your friends? What follows is a breakdown of the benefits of owning real estate and the new types of properties that will generate cash flow for you.
Why Invest in Real Estate
Real estate is the most proven asset class to generate wealth for its investors, holding Trillions of dollars in the market and bringing great benefits to those who invest in it.
The benefits of Real Estate are:
- Real Estate Provides Consistent Cash Flow (Income)
- Real Estate is a Hard Asset with Tangible Value (Real and not meta)
- Real Estate Generates Wealth Through Appreciation
- Real Estate Preserves Wealth Against Inflation
- Real Estate Provides Leverage to Multiply Your Buying Power
- Unique Tax Advantages and Tax-Efficiencies
As the largest asset class in the world, real estate has attracted a multitude of successful people who have entrusted their earnings in this stable investment type. Real estate is the largest investment group — bigger than the stock market and oil industry — that actively generates and preserves wealth as a tax-efficient, tangible asset with appreciation.
Commercial real estate (CRE) investments provide investors with regular cash flow, whether they actively or passively invest, giving them the ability to choose how much time they want to spend managing their properties.
Real estate has also been a historically stable asset that is slow to rise and slow to fall in value, meaning your investment capital is safe. Unlike the stock market that ebbs and flows with the whims of consumer interests and political volatility, real estate holds its ground (literally) with investors since homes, commercial buildings and land are always going to be necessary for society to function. Tangible products need real properties to manufacture and sell goods. Service-related industries need buildings to provide customers with what they want and need.
Since real estate is a hard asset, it gives you the security of tangible value and works as a hedge against inflation. You can borrow money by leveraging your properties to buy more assets that will appreciate in value or keep current investments that have already appreciated — either way, you have a positive return on your investments. Ultimately, real estate is and will continue to be the original asset class to create and add value to our lives.
Advantages of Net Lease Investments
There are multiple different types of real estate, including commercial, industrial, stand-alone properties, etc. Not all real estate is made equal, though; there are some property types that have much more advantageous lease structures.
Leases are contractual agreements with real estate properties in which the landlord allows a tenant to hold the property for a stipulated amount of time and pay a specified rent. The lease agreement will specify what a tenant can and cannot do with the property over their leasing period, providing the rent payment(s) for use.
Although owning certain real estate has its benefits, many tenants prefer to lease because they don’t have to make a downpayment to purchase the building, rent and tenancy payments are fully deductible as operating expenses, and it is easier to scale your business model when leasing.
Net Lease Structures
The best choice for stable, passive monthly income is Net Lease real estate. There are three types of Net Leases: Net (N), Net-Net (NN), and Net-Net-Net (NNN) Leases. NNN leases are also referred to as Triple Net leases and have the most advantageous lease structure for investors. These NNN properties provide consistent cash flow because the tenant pays monthly rent and all of the operating expenses, including real estate Taxes, Insurance and Maintenance (“TIM,” for short).
With the tenant of the triple net property paying all of this, the investor has minimal management responsibilities. A pure Triple Net property means that the landlord will have no expenses, except hiring a property manager, bookkeeper and/or tax expert to keep track of finances and payments.
Triple Net Real Estate Protects Your Capital
Triple Net investments are one of the best property types to generate and preserve capital since most have built-in escalations for rent, which protects against economic downturns and market uncertainty. Some leases have additional protections against inflation, detailing that a tenant will also pay a percentage of their sales from the location. Lessors of NNN real estate have unique tax advantages, as well, especially when dealing with depreciated buildings — the IRS may let you deduct the loss of value on the asset.
Properties with an NNN lease are also some of the most stable real estate investments because tenants have long-term rent obligations, providing passive monthly income to the investors of the properties. Triple net buildings typically have lease agreements that span 5, 10 or 20 years with additional 5- to 10-year renewal options, so investors do not have to worry about yearly turnover, unlike with some residential real estate.
Most net leases also stipulate built-in rent escalations, which can account for future economic inflation and/or increased profits that tenants receive from running successful locations. Triple net real estate ensures investors with secure cash-flowing assets that require little to no management responsibilities on their part. Property owners reap the benefits of stable rental income paid by the tenant without the risk of uncontrolled expenses that can increase over the life of the investment.
Even if the stock market crashes and other real estate investments struggle, these properties’ tenants continually pay rent to their investors. Net Lease properties not only consistently produce fairly high returns, they are also tangible buildings in the best and highest growth areas of the US.
Traditional Net Lease Investing
Additionally, net lease properties are regarded as reliable investments because of their brand-name tenants that occupy them. The properties are regularly leased to Billion-dollar brand-name corporations that provide basic necessities and services and have large financial strength to pay for the expenses of the buildings.
These properties receive corporate guarantees from investment-grade (creditworthy) national brand names, which put investors at ease for the financial trustworthiness of the businesses. Some of the typical industry tenants include: Automotive Services; Carwashes; Convenience Stores and Gas Stations; Dollar Stores; Drug Stores; Grocery Stores and Supermarkets; Medical, Dental and Veterinary Services; and Telecom/Mobile Phone Providers (AT&T and Verizon).
Most Net Lease buildings are freestanding stores with one tenant located on, or at the intersection of, major streets with unobstructed visibility of their signage on the fronts of the properties, acting as free advertisements that draw in business. The building serves as a billboard for brand awareness, which makes these Main-and-Main locations highly sought after and easy to repurpose to accommodate different users.
Modern Real Estate Investment Opportunities
The typical NNN tenants are investment-grade companies, like McDonalds, Starbucks or Jiffy Lube, but there are so many more investment properties out there. Newer stores to the restaurant and retail spaces around the US utilize advantageous Triple Net lease structures, too.
For example, Velvet Taco is a premium fast-casual taco restaurant that sells a variety of trendy tacos that not only look good when snapping a picture of it for your Instagram but taste delicious, as well. With over 35 restaurants in Texas, Chicago, Georgia and South Carolina, Velvet Taco enters into long-term net leases, such as its property in Richardson, TX, with an 18-year absolute net ground lease and built-in 12% rental increases every 5 years.
Velvet Taco also has a healthy average cap rate of 4.46% and positions the properties on great Main-and-Main locations. Would you rather invest in trend-setting tacos or be up to your elbows in toilets? (Don’t worry, that was rhetorical.)
Another prime deal hitting the market is the absolute NNN lease for The Sandbar & Kitchen, the only oceanfront restaurant located directly on the beach on Amelia Island right off the coast of Florida. Not only does this triple-net property have a gorgeous view, but it also has a 20-year lease with two 10-year renewal options and 10% rent escalations every 5 years throughout the lease term.
If restaurant investing isn’t what you are looking for, there are many more industries to choose from, as well. Tesla, the American automotive and clean energy company owned by Elon Musk, also favors lease properties for their stores and service centers. You can also resist being your own James Bond and invest in NNN gaming REITs that have grown, like the luxury Wynn Resorts casinos who conduct sale-leaseback net lease investments with cap rates of over 5%.
Recently, casinos and gaming REITs have become a newer stable net lease investment that companies like Greet Street, a global real estate research and analytics company, are adding to investor portfolios for a high-yield diversification strategy. Many national fitness centers, such as XSport Fitness and LA Fitness, also utilize the advantageous NNN lease structure for their properties.
Real Estate for the Win
As mentioned, real estate is one of the best investments you can make because of its tangible value, tax-efficiency, generation and preservation of wealth, stable returns and variety of assets in multiple industries.
Net lease properties also give investors nothing but net income with minimal management responsibilities, so you can choose what business you want to create passive income from. Convenience stores and gas stations are not your only option for a great net lease investment and you have the opportunity to build your wealth through companies you can personally enjoy visiting, even a restaurant on the beach. The NNN investment world is your oyster, so invest in properties that are smart AND savvy for your portfolio.
For more information on Liberty Real Estate Fund, Net Lease properties and Blockchain Real Estate, contact us HERE.
About the author
Courtney Stone is the Marketing and Communications Director at Liberty Real Estate Fund LLC, the World’s First Net Lease Security Token FundTM. She is a May 2021 honorary graduate at the University of Illinois at Urbana-Champaign who majored in English, with Economics and Journalism minors. Courtney also works as a Copywriter and Marketing Strategist for Concordia Realty Corporation and Dream Chasers, as well as proofreads for the National Council of Teachers of English (NCTE).
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