Striking gold may be luck, but investing in a recession resilient commercial property doesn’t have to be.
There are a few things Millcreek Commercial looks for when identifying properties for our investors to ensure the investment properties we choose are safe, stable, and secure. First, our properties are investment grade. The properties we choose also must have long-term leases with a single tenant. Lastly, our properties have a triple net lease. Investing inherently comes with risk, but by looking for properties with these characteristics, we can help investors take luck out of the equation and be confident that their investments are not left up to mere chance but strategic decisions that are more likely to yield the pot of gold at the end of the investment rainbow.
“Lucky” Commercial Property Characteristics:
1. Long-term Lease
A long-term lease takes luck out of the equation by reducing the costs associated with tenant turnover. This is a significant contributor to portfolio stability. Knowing that rents will be paid for the next several years, and on some leases, up to the next 20 years, ensures stability. By investing in a property with a long-term lease, you can rest knowing that you will not have to fill a vacancy year after year.
2. Single Tenant
Investing in a property with a single tenant reduces the complexities of owning investment real estate. There is only one tenant to engage with if a lease needs to be negotiated or other decisions regarding the property need to be made. When dealing with multiple tenants, you have to be incredibly lucky to maintain full occupancy. With one long-term tenant, occupancy is more assured.
3. Triple Net Lease
A triple net lease (“NNN”) removes the financial burden of owning and maintaining the commercial property away from the landlord and shifts that responsibility to the tenant. In a triple net lease, all expenses associated with the property are covered by the tenant. This includes maintenance and repairs. After the tenant pays for the monthly rent, they have three buckets of expenses they are responsible for – property taxes, insurance premiums, and building maintenance. A NNN Lease means more green for you as the landlord!
4. Investment Grade
An investment-grade commercial property is one that has a tenant with a credit score rating of BBB- or higher. Rating agencies consider this a good rating, so investors can be confident that tenants will pay their obligations when investing in an investment-grade property. This provides a safer and more stable investment.