The single tenant net lease real estate properties are highly popular for the investors interested in 1031 exchanges but this does not mean there are no associated risks. Such properties are also known under the name NNN real estate when there is tenant that is going to pay for insurance, property maintenance and property taxes. In such cases you need to be aware of the following risks.
Such a property will be occupied or vacant. In the event the tenant leaves income reaches zero and the owner becomes fully responsible for insurance, maintenance and taxes. In theory, when a specific property remains vacant you would lease it to another tenant but that is not so easy to do. The initial tenant left the property because of a specific reason, normally something connected to the location.
Many investors are interested in properties that promise to offer really high returns but that is normally impossible when changes happen in the local market. That is why location is so incredibly important at the end of the day. Initially the STNL real estate property may be a wonderful investment with a great location but after some time, this changes.
In many cases the STNL real estate will be designed to meet specific requirements that a tenant has. As you try to re-lease to another tenant time the time and money lost can be quite a lot. When a building is specialized you need to be extremely careful. Even when the building is located in a prime location, lease negotiations and marketing can cause a lack of rent for numerous months. Such a thing is incredibly challenging for the absentee investor that lives quite far away from an NNN property. It is really important that you are careful and that you understand the rent payment ability of the tenant.
A False Sense Of Security
This happens as the property owner trusts a specific brand way too much. Simply because there is a brand associated with the NNN property is not a guarantee that rent is going to be paid. Although you may think differently, the truth is there are many different really well-known companies that decide not to pay rent. Parent companies do not always guarantee that rent payments will be made on time.
Not Understanding Rent Payment Ability
Due diligence is always necessary when analyzing tenants since the property owners have to be sure the needed finances to pay the agreed rents are in place. Most STNL properties are going to be leased by a franchise. That is not something bad as many franchises are creditworthy. However, keeping a tight control on everything is a necessity. When the tenant seems to have very strong credit it does not mean that this is actually the case. It is really important that you analyze the company in detail, especially when you are dealing with a franchise. When you do not do this it is easy to be tricked into signing a deal with a firm that is not so creditworthy.