What to Consider When Purchasing Net Leased Investment Real Estate

Credit Worthiness of the Tenant

"Credit" tenants have an investment-grade credit rating from a nationally recognized rating service and are considered the most desirable. Credit tenants will provide greater security to a lease although most often leases with credit tenants will result in lower cash returns to investors. Investors looking for higher returns frequently invest in properties with regional or local tenants. However, these types of tenants need to be carefully investigated to insure that the investor understands the added risk and whether or not they are being compensated for taking that risk.


Lease Terms

Lease terms should be carefully considered. An investor should look at: length of the primary lease and option periods, kinds and frequency of rent increases, termination clauses and any expenses affiliated with the lease, which ultimately could be an investor responsibility.


Demographics

While net leased properties provide steady and predictable income for the term of the lease, the location of the property will impact the long-term value of the investment. All leases end, and when they do, the ability to negotiate favorable new lease terms with the existing tenant or to retenant the property will be a direct function of the strength of the property's location.