What You Should Know About Net Lease REITs

REIT

When it comes to the leasing element of property management, the devil is always in the detail. Many terms and conditions are involved when leasing a property. Thus, you must understand the fundamentals of some, if not all, the concepts that entail leasing. One of the terms often thrown around when it comes to leasing is Net lease REIT. In this article, we will try and break down into digestible pieces everything that neat leasing entails.

What exactly is net leasing?

According to Investopedia, a net lease in its most fundamental of forms, is a contractual agreement between a real estate owner and a lessee that states that the lessee is to pay a portion, or the entirety, of the taxes the insurance, and the maintenance of the said property, in addition to paying a specified amount in rent. Essentially, for the purest form of a net lease, the lessee is supposed to handle and cater to every single cost that the property may incur, as if the lessee was, in fact, the actual owner of the property. These types of lease are especially common when it comes to commercial real estate.

What is a net lease REIT?

A net lease REIT is a real estate investment trust that owns a portfolio of properties mainly comprised of properties rented out to single tenants under net leases. The major difference between other real estate sectors and the Net Lease Sector is that REITs in the later are grouped and defines by the type of lease instead of the type of property (retail, office, industrial). This site reports that the net lease is among the fastest-growing REIT sectors in the market. Many firms are opting to lease instead of owning the properties they need to run their operations and businesses.

The difference between a net lease and gross lease

As stated earlier, the net lease specifies that the lessee is obligated to take care of a portion of all the fees the property may incur. The more common type of lease, the gross lease, is a contract that stipulates that the lessee is obligated to pay a specified amount in rent, while the owner of the property, the landlord, handles every other cost. The amount paid in a net lease is considerably larger than that the lessee would pay had a gross lease been used. This is because of the additional insurance, maintenance, and tax fees that the lessee is responsible for. Nevertheless, the net lease is as dynamic as leases come. It is sometimes difficult to identify whether a contract is, in fact, a modified gross lease or a net lease. This is because the leases are tailor-suited to cater to the needs of the parties involved, and the said needs and agreed terms might differ from one individual to another.

Why are net leases used?

Net leases offer considerable advantages to both the landlord and the lessee. For the former, they have no obligation to take care of the somewhat cumbersome costs of the buildings. It may be easy for them to take care of said costs from a monetary perspective, but the processes used to clear things like taxes and making sure the property is regularly maintained can prove to be somewhat of a bother. Ergo, investors why purchase commercial real estate projects and entities often prefer to hand over all the running of the property to the individual or party that leases it. That way, they rid themselves of the burden of the day-to-day administration of the property. From the lessee’s perspective, being a landlord in every sense except owning the title deed gives you ultimate control of the property. Since it is their responsibility to maintain the building, they don’t have to push the landlord around to do so.

In monetary terms

Net leases are mostly used when large commercial properties are involved, and when the party that wants to lease wants to do so over a long period of time, say ten years. From the lessee’s perspective, the net lease contract only works if the difference between the amount they pay for the net lease fees and the amount they would pay had a gross fee been used is enough to offset the costs of the insurance, taxes, and maintenance. Simply put, the feasibility of the net lease should show that even when unpredicted rises occur in terms of the taxes, maintenance, and insurance, they will be able to handle lit without incurring losses. The property owner, on the other hand, reduces the amount of money they charge for rent because a burden has been lifted from their shoulders.

Types of net leases

Like any other contract, even though the center can be defined, the edges are often a bit blurry. When it comes to net leases, the terms are mainly dictated by the parties involved. The costs that each party handles are stipulated on the specific contract. Consequently, it may be a bit difficult to break net leases into categories. Notwithstanding, in broad terms, net leases are broken down into three categories. They include:

Single Net Lease

Single net lease is the type of the net lease where the lessee is obligated to cover one additional cost on to rent. This may be maintenance, taxes, or insurance fees. The specific cost the take on is agreed upon by both parties and the terms are stipulated on the contract they sign.

Double Net Lease

As the name would suggest, this type of net lease is used to refer to terms where the lessee takes on two of the three obligatory fees from the landlord. Thus, the landlord, is left to take care of the remaining fees. These types of leases are commonly referred to as net-net leases

Triple Net Lease

You’ve probably deciphered the pattern now. Triple net leases are used when the lessee takes on all of the additional fees, while also paying rent. With the added expenses, it is commonplace for the landlord to agree to reduce the amount of rent paid. These types of leases are used for large commercial properties, with the lease spanning over many years. Even with these definitions as stepping manuals, the lines that separate these categories, and the ones that separate net leases and gross leases are often very blurred. In some instances, you will find that the gross lease is modified to become a hybrid version of the net lease. In some scenarios, the lessee is obligated to pay a specific amount of money that caters to, say, the insurance fees.

Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Careers CEOs Companies Education Entertainment Legal Politics Science Sports Technology
Ruben Harris
10 Things You Didn’t Know about Ruben Harris
Virtual Reality
20 Things You Didn’t Know about Avataar
faith based apps
The Growing Business of Faith-Based Apps
Collectibles Credit Cards Investing Real Estate Stocks
Crypto Airdrops
What are Crypto Airdrops and How to Do They Work?
silver stocks
10 Silver Stocks Worth Looking Into
stock market
Is FSR Stock a Solid Long-Term Investment?
Aviation Boats Food & Drink Hotels Restaurants Yachts
Pinot Noir
The 20 Best Pinot Noirs to Drink in 2022
Courchevel, France
The 20 Best Ski Towns in Europe
Suntory Whiskey
Why is Suntory Hibiki Whiskey So Expensive
BMW Bugatti Cadillac Ferrari Lamborghini Mercedes Porsche Rolls Royce
The 20 Best Station Wagons of the 80s
Carolina Squat
What Is a Carolina Squat and Is It Legal?
2022 Toyota Tacoma
A Closer Look at The 2022 Toyota Tacoma
BMW Motorcycles Buell Ducati Harley Davidson Honda Motorcycles Husqvarna Kawasaki KTM Triumph Motorcycles Yamaha
2022 Bimota KB4
A Closer Look at The 2022 Bimota KB4
2002 Triumph Speed Triple
Remembering The 2002 Triumph Speed Triple
2021 Lexmoto LXR SE 125
A Closer Look at the 2021 Lexmoto LXR SE 125
Electronics Fashion Health Home Jewelry Pens Sneakers Watches
Jordan 11 Jubilee
Why is The Air Jordan 11 Jubilee So Expensive?
Patek Philippe Calatrava Ref. 6119
A Closer Look at the Patek Philippe Calatrava Ref. 6119
Hermes Slim Squelette Lune Watch
A Closer Look at The Hermes Slim Squelette Lune Watch
Lane Kim
How Kane Lim Achieved a Net Worth of $20 Million
Mark Levin
How Mark Levin Achieved a Net Worth of $50 Million
Pink Floyd
How David Gilmour Achieved a Net Worth Of $180 Million
Dana Carvey
How Dana Carvey Achieved a Net Worth of $20 Million