The commercial real estate industry can be a complex and intimidating market to investors with limited knowledge of the industry. Potential investors may opt out of investments that they believe are out of their realm of expertise. "NNN" or triple net leased property is one of the many ways to invest in commercial real estate and can sound confusing to an investor. Historically these investments have been in high demand and continue to be quite active in today's market. Although sounding complex, many investors with less experience in real estate have seen great returns when investing in triple net leased property.
A true NNN Lease is where a single tenant leases a building typically 10-20 years or more, and is responsible for all cost associated with maintaining the building, including: maintenance, repairs, taxes, and insurance. An investor of a triple net lease pays a lump sum up front for the cash flows or rent the lease produces. The investor is taking on the risk that the tenant may default on the lease and is compensated accordingly by means of a specific rate of return, known as a cap rate. The more credit worthy a tenant is the lower the cap rate and the opposite holds true for a lower credit tenant. NNN investment property can be appropriate for experienced and beginning investors alike. The main advantage to purchasing a NNN investment property is the fact that they are typically a low maintenance investment for the investor. This feature also opens geographical boundaries and allows the investor to choose from a nationwide pool of investments. These features along with capital gains and inflation protection make triple net leases very attractive.
This is a great question and one that seems to be on a lot of people's minds lately. Admittedly it is an attractive market. Home prices are lower, mortgage rates are historically low and there is an oversupply of homes on the market. Consider only those facts and the answer seems very simple: Buy now! Unfortunately many buyers fall into that trap and forget to take ALL facts into consideration. Before deciding to purchase, ask yourself the following questions:
Q: How long do you plan to live in your new house?
A: If you did not say 3 years or longer, then you need to seriously consider renting. Keep in mind that the average home appreciates between 1% - 3% per year. Not 10% - 20% like they briefly did in '06 - '08.
Q: How much money do you have saved up to use for a down payment?
A: In this volitale market you should aim to put down 10% of the purchase price as down payment. Most lenders are requiring this, but there are still a lot of 3.5% - 5% down payment programs out there. There is certainly a time and place for the lower down payments, but if you can afford it, go with the higher number. This will give you some security that you will not have to write a check at closing when you unexpectedly get transfered and have to sell your house earlier than expected!
Q: Have you considered the additional costs associated with owning a home?
A: This is often over looked by eager home buyers, but is very important to consider. When renting, there is typically very little additional cost other than rent and utilities. As a home owner, you will be faced with additional costs that can sometimes be significant. Costs to consider: lawn maintenance, home maintenance, insurance, property taxes, garbage pick-up, HOA dues, and special assessments.
If you have thought through the questions above and feel like owning a home is the right move, then congratulations. Home ownership can be very rewarding and offer some nice tax breaks! Mortgage interest is typically tax deductible and if you run a home business you may be eligible for addtional deductions. The most important thing to remember when purchasing a home is that you are making a long term investment.
For more information, please visit our website at www.theparkercompanyre.com.