I was into residential real estate back in the mid-2000s until I got crushed. Part of my goal was to flip enough houses to save up $200,000 so I could buy a triple-net lease investment property. It never happened then, at least not yet 🙂
What Is A Triple Net Lease
What is a triple-net lease property? A few examples you may know are stand-alone Starbucks; stand-alone Dollar General; stand-alone Walgreens; any stand-alone retail store(s) that are backed by corporate names. The reason why you would want to buy something like that is that you could put your $200,000 down on a million-dollar property and Dollar General or Walgreens would give you a 15-year, 20-year, or sometimes even a 30-year lease. Starbucks was always an 8 to 10-year, or 12- or 15-year lease. There were a few Walgreens, depending on the location, that would give you a 30-year lease as well.
Wikipedia defines Triple Net as “A triple net lease (Net–Net–Net or NNN) is a lease agreement on a property. The tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three “Nets”) on the property. Additionally, they agree to any normal fees that are expected under the agreement (rent, utilities, etc.).”
Are You Ok With Putting All Your Eggs In One Basket?
This means that the investor signs the lease. The tenant, not the owner, is responsible for the taxes, insurance, and maintenance for the duration of the lease. When looking at real estate and having a hands-off approach, there is nothing better than having a corporate tenant that will guarantee the lease and pay all the carrying costs.
That is if you are OK with putting all your eggs in one basket. I would argue that this is just a piece of your investment strategy. Meaning, if you are looking for monthly income, this is one spot out of five or ten.
Diversification On Location
Diversification on location and corporate client is very important. This post stems from a conversation that I had with my Aunt. I had to write about it. My Aunt has a theory that everything is moving online. Amazon, or the Amazon of the world, is crushing individual retailers.
Take a look at your buying habits. Who remembers Sam Goddy or Radio Shack? What happened? iTunes and Amazon. How is Amazon changing Home goods? Is Amazon changing Best Buy? Do you feel that Amazon is changing Walmart and Walgreens?
Old Habits Diehard
My Aunt’s theory is that she believes in the old school shopping malls. The malls where all the stores are under one roof. Where everything is facing inward and you remember walking around them as a teen and “hanging out”. Most have a central hallway of sorts, either one story or two. She believes these types of properties are going away.
The structures will stay, but their existing function of retail space will be replaced by a new, “micro-manufacturing community”. Multiple storefronts will turn into small manufacturing facilities, or storage units, for individual companies who want to have a retail and shipping location but also could double as a storefront. They have a parking lot for the trucks. The buildings have the warehouse docs for the distributions. The property even has individual gates that can be blocked in order to store products. I think she is on to something.
DIY Spaces Where People Can Gather to Create, Invent & Learn
If you look at the maker space movement, defined here: “Makerspaces, sometimes also referred to as hackerspaces, hackspaces, and fablabs are creative, DIY spaces where people can gather to create, invent, and learn. In libraries, they often have 3D printers, software, electronics, craft and hardware supplies, and tools, and more”, which would allow for a transformation of this old-dead type of real estate.
I speak around the United States and I talk about how we are in the “McDonald’s economy”. Everybody wants everything now, now, now, now. When we buy things on Amazon in many cities, you can get your purchase that day or the next day. Even if you are in a rural area, you can get it in 2 days.
Look at the long-term view of the triple net lease of a brick-and-mortar store. I think the only survivors in that space are going to be the ones that offer services. For example doctors’ offices, dentists, and gyms. The spaces where people need to go to see somebody or physically do something, and not simply purchase products.
As you look at building out your real estate portfolio, you may want to consider this.