Versus the volatility of the stock market, when NNN property investors consider the tax advantages and rent escalations over a 15-20 year lease term, a 5% cap rate can potentially translate to a 7-8% return! There are also these massive benefits: passive, consistent monthly income, and an appreciating, tangible asset that overtakes inflation.
Triple net NNN property investments appeal to people who, for example, owned residential portfolios or office buildings, but no longer want to manage a property and want to do other things. Here, the common area and other property repairs and maintenance – roof, HVAC, windows – are landlord responsibility – via the cumbersome Gross Lease. There is also the stressful cost of tenant turnover, high risk of vacancy, and the specter of an eroded realty market when selling the property. Investing, whether in NNN or other, is all about context, we know (NNN property in 2020, investment-grade tenants). So what is the context i.e. the economy and the realty market, looking like?
The U.S. central bank has lowered borrowing costs twice this year after having raised interest rates 9 X since 2015. We are now heading into rough economic weather. Forecasters are predicting, based on an inverted yield curve, an impending recession by early 2020. Thus, cap rates are bottoming out. In 2018, cap rates had seen better days. Leading commercial real estate brokerage houses are also predicting flat cap rates that will begin to slowly rise in 2020.
Buyers are also moving capital to states that are more investor-friendly, with benign regulatory and lower corporate and personal tax rates. In the last 12 months, buyers are looking for deals and 1031 Exchange property in every state but CA because of the business climate there(NNN property in 2020, quality NNN properties). 1031 Exchange buyers make up a huge portion of NNN seeking capital, driven by retiring owners looking to passively manage properties with triple net leases.
So what does all this mean for NNN lease investment property? Is it a good time to be considering an investment in a quality NNN lease? The answer is an unqualified yes! Most NNN triple net properties are leased by investment-grade companies that offer fast-moving consumer goods and services which thrive in a bricks-and-mortar setting e.g. fast-casual and QSR food concepts, banks, gas and convenience stores, dollar stores, and pharmacies, urgent care, dialysis centers, etc(investment-grade tenants). These well-managed, well-funded, companies tend to do well in all economic conditions, especially in a recessionary economy.
Plus, the tax regime continues to favor NNN investors and the 1031 Exchange law is still largely intact, as is the 21% tax rate for C-corporations – a popular investment vehicle in commercial real estate. Remember: Triple net NNN property owners are so far not liable for any property taxes or municipal taxes!
Thus, despite the threat of a recession, declining interest rates are causing an uptick in investor capital that is seeking returns more evenly matched to the risk of the broad economy. The upcoming economic environment will allow aggressive investors to access cheap capital and buy quality NNN properties with investment-grade tenants(investment-grade tenants). NNN property investors will thus retain collateralized investments that those investing in the stock-market so badly lack!
To position yourself for NNN property investments in an economy where the waters appear murky, call on your expert brokers at the Triple Net Investment Group for the best navigation toward profit, not loss.
