FAQ

1) What is a “net leased” or “triple net” property?

2) What does Net, Net-Net-Net or Absolute Net mean?

3) What does Double Net or Net, Net mean?

4) What is a 1031 Exchange?

5) What are some of the most important things to consider when buying a single tenant property?

6) What should I expect from my broker?

7)What is a TIC or Tenant In Common investment?

8)Where are the best deals?

9) Is a franchise tenant risky?

10)Should I consider buying a property out of state?

11) What type of financing is available for single tenant properties?

12) What is a Qualified Intermediary?

13) What is a Ground Lease?

1) What is a “net leased” or “triple net” property?

Triple net is a term used to define a freestanding, single tenant investment property where the tenant is responsible for all expenses including taxes, insurance and maintenance.
The Landlord receives monthly rent with no offsets.

2) What does Net, Net-Net-Net or Absolute Net mean?

This means the income is “net” of property taxes, insurance and maintenance. In other words, in addition to rent, the tenant also pays taxes, insurance and maintenance. These investments are ideal for passive investors.

3) What does Double Net or Net, Net mean?

This means the Landlord, not the tenant, is responsible for some maintenance of the property. For example, items of responsibility might include maintenance of the roof or parking lot.

4) What is a 1031 Exchange?

This is a process where an owner of a property held for investment may sell one property and reinvest in another property, defering their capital gain. - This must be done through a Qualified Intermediary.

5) What are some of the most important things to consider when buying a single tenant property?

Location	Always a very signigicant consideration. Several other important features should be considered including Average household income, surrounding commercial and residential uses and projected population growth.
Type of Lease	An absolute net lease or NNN lease is one where the tenant is responsible for all expenses associated with a property. There are some instances where the landlord will forward insurance and property tax bills for payment while others are handled directly by the tenant. A double net or NN lease is one which the Landlord is responsible for the repairs and maintenance of the roof and structural components of the building. Some tenants will only write a NN lease. The vast majority of day to day management is still handled by the tenant. The landlord will be notified if there are issues with the roof. Typically, a landlord will have a reserve account in the event repairs are needed.
Credit of Tenant	Rent will be guaranteed by the tenant signing the Lease. The tenant may be a public company or a private company. There are some very successful private companies. Some leases are signed by corporations while others by franchise operators. Some franchisees are quite significant.
Rent Increases	Leases will either be flat or contain rent escalations which may occur annually or every 3-5 years. Certain credit tenants only write flat leases. Investors need to look at these properties as a bond. Property leases for these higher credit tenants usually attract lower fixed rate debt.
Leverage	Depending on your 1031 exchange requirement, you may chose to purchase a property for cash or with new or assumable debt. Remember that cap rates are only useful when comparing all cash transactions. Most of the property we sell qualifies for long term fixed rate debt.

6) What should I expect from my broker?

A broker should be able to provide alternative investment options and clearly articulate the pros and cons of each. Once a property is identified, your broker should make the process smooth by handling the negotiations, assisting with the review of due diligence documents and assisting to successfully close an escrow. Getting an offer accepted on a property is just the beginning of our work. The Silver Group assigns a “transaction manager” for every client.

7) What is a TIC or Tenant In Common investment?

A TIC investment is simply the ownership fractional share of a property. Investors have no management responsibilities since they are handled by the “sponsor”. The premium being paid for the fractional share covers the sponsor’s involvement. An investor has no input or control over decisions affecting their investment. There are some questions regarding TIC investment qualifying for a 1031 exchange.

8) Where are the best deals?

Every client has a different parameter. Some feel the location is most important, while others seek the highest yield. Yields or capitalization rates are best in the middle of the country, due to the higher demand from investors seeking property on the west coast. Florida yields are the lowest.

9) Is a franchise tenant risky?

Many companies only operate stores through a network of franchisees. IHOP is a prime example of a successful company whose stores are owned and operated by franchisees. IHOP realized that local owners do a better job and are more nimble when reacting to their market. Some franchisees have significant experience and financial stability. Smaller franchisees may provide a personal lease guaranty.

10) Should I consider buying a property out of state?

The simple answer is: Why not? Investors should remain open minded and consider every property on its own merit. Make a decision based on location, credit, lease and return. We recommend looking at Absolute Net Leases where there are no Landlord responsibilities. There are many exciting areas in the country that are experiencing growth. Transactions out of state can be closed in coordination with a title company in your area.

11) What type of financing is available for single tenant properties?

Long term fixed rate financing is available from insurance companies, Wall Street lenders and banks. Loan to values are conservative, which is consistent with the investment. The Silver Group can refer you to experienced mortgage brokers.

12) What is a Qualified Intermediary?

A Qualified Intermediary is an independent third party to the transaction whose function is to prepare the documents necessary to create the exchange, as well as to act as the independent escrow agent for the funds. The Qualified Intermediary is defined by the Treasury Regulations and may not give tax or legal advice.

13) What is a Ground Lease?

An un-subordinated Ground Lease is the ownership of the land which someone leases for a period of time. All improvements are constructed and paid for by the tenant and the tenant retains ownership until the lease terminates. At the end of the lease by termination, default or expiration, the improvements are turned over to the landowner at no cost. Since the tenant has invested their funds in the improvements, there is additional incentive to pay rent on time. This is one of the more secure single tenant investments you can make. One drawback is there is no ability to depreciate the land. This is ideal for investors with little or no depreciable tax basis.