Despite the risks, the benefits of investing in net lease commercial real estate generally outweigh the disadvantages. In this short articles, we’ll first look at some reasons to consider investing in commercial real estate as opposed to residential real estate, then examine the benefits of investing specifically in net lease commercial real estate.
As many investment advisors will tell you, investing in commercial properties is a good way to diversify you investments to protect against future changes in the economy. Within the area of commercial real estate, you can take this one step further and choose several different industries to work with. This guards you from losses due to economic turndowns in one particular industry.
Good Capital Gains
When held for the long term, commercial real estate provides excellent potential for capital gains. An added benefit of this is that it guards you against losses due to inflation. Since real estate value almost always increases over time, the value of your investment capital is sure to keep up with the rate of inflation.
Relatively low risk
Although commercial real estate may not be the most liquid of investments, it’s a lot safer than stocks and bonds. For one thing, real estate almost never loses all its value. Stocks definitely can. Predicting your income from commercial real estate is also a lot easier than predicting what a company’s stock value is going to do. Carefully research property values, calculate rents and, if you’re planning on using a double-net lease, costs of maintenance and you can come up with a fairly accurate idea of your income and the property’s future selling price.
Steady cash flow
With commercial real estate, income and expenses are also easy to predict. All you really have to worry about are rent, mortgage and certain fixed expenses. What’s more, while it’s true your income is dependent on the tenant, businesses are a lot less likely to default than individual lease holders.
Many investors consider the greatest tax benefit of commercial real estate to be the tax write-off you get every year for the depreciation of your property even while the market value is increasing. This is just the opposite of some investments where you may end up owing taxes even when the value of your investment goes down. Just keep in mind that although a triple net lease will lower your risk and expenses, it can also cut into your tax advantages.
The advantages of net lease agreements
The primary advantage of using a net lease agreement with your tenants is that it creates a low-maintenance situation for you. With a double net lease or NN, your tenant will be taking care of
real estate taxes and building insurance. You only need to worry about major structural maintenance and, in some cases, utility bills. With a triple net lease or NNN, on the other hand, your lessee takes care of all expenses.
Considering the major benefits of commercial real estate investing over many other riskier, less rewarding investments, it’s no wonder interest in the field is growing. While there are plenty of advantages to investing in net lease commercial real estate, before you get too involved, make sure you’re aware of the risks, too.
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