Understanding Leased Investments
The primary aspect of certain lease structure is investment grade, long term net leases. In relation to long term however, this means the length of lease in general while the net leases means the structure of these lease obligations.
Learn more about these subjects by reading the next lines.
Number 1. Investment Grade – as a matter of fact, this lease basically refers to tenants that maintain good credit of Better Business Bureau or even higher. The investment rating is represented by a company’s ability of repaying its obligations. In line with the agency’s rating, it is how BBB is representing good credit. Most of the time, only bigger, national companies are able to maintain good credit rating.
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Both franchise and regional tenants are actually small for the rating agencies to monitor. For this, it is important that the lease is corporate backed by parent company and isn’t just regional franchisee. There is a big difference between strength and credit of regional franchise owner as well as the actual corporation itself. The corporate parent can provide better rent stability in midst of economic downturn while the rent stability means improved stability for the price and value of your real estate.
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Number 2. Long Term – as for long term, it is usually fixed length obligation in lease term or beyond ten years. There are some advisors or brokers that might include lease option as part of fixed lease term. It is essential to know what is obligations and options. Say that the tenant for example has an option to renew additional 5 years after the initial 5 year term, the term then should be considered as 5 year lease with additional 5 years in option and not a 10 year lease.
As being a client, it is your job to learn about the rent terms and on how long the tenant is obligated to pay as it can make a big difference as soon as you start considering returns, risks, ability to acquire financing and also your ability to resell property for profits.
Number 3. Net Leases – the types of leases to which tenants are in charge for operating expenses which include the structure, insurance and the roof are referred to as Double Net or NN and Triple Net or NNN leases. Pure NNN lease that covers such costs via the term of lease is typically referred as absolute NNN lease. Some are even calling it as Triple Net that don’t include expense on roof or structure of the building. These leases are known precisely as modified NNN or double net NN leases.