In the commercial real estate sector, investors often seek net leases. Here, we’ll cover everything you need to know about Single Tenant Net Lease, along with tips and strategies to give you an edge in the market.
What is a Single Tenant Net Lease?
A Single Tenant Net Lease is a commercial real estate lease agreement where the tenant agrees to pay property taxes in addition to rent. This type of lease passes the responsibility of property taxes from the landlord to the tenant. However, the landlord remains responsible for other operating expenses associated with the property.
Understanding Single Net Lease
A Single Net Lease is a specific type of net lease where the tenant takes on one operating expense—primarily property taxes. It differs from other net leases, such as double net leases and triple net leases, where tenants might also cover additional expenses like insurance or maintenance.
How Does a Single Net Lease Work?
As a landlord, you can collect rent from your commercial tenants. Depending on the lease type, you may also bill them for additional expenses like property taxes, insurance, and repairs. In a Single Net Lease, the tenant is responsible for paying property taxes. The payment amount depends on the agreement between both parties. For example, property taxes might be included in the rent or as a separate payment that adjusts with tax rates.
In multi-unit buildings, the tenant’s share of property taxes corresponds to the size of their unit. For instance, if a tenant rents half of the property, they pay half of the property taxes.
Pros of Using a Single Net Lease
Increased Profits: You don’t need to use tenant rent to cover property taxes, allowing you to keep more rent as profit.
Protection Against Tax Increases: If property taxes rise, you aren’t affected because the tenant pays these taxes, ensuring your rental income remains stable.
Cons of Using a Single Net Lease
Hands-On Management: Although tenants pay property taxes, you’re still responsible for managing the property’s maintenance and repairs. This requires a proactive approach.
Maintenance and Repair Costs: Owning a commercial building involves handling all maintenance and repairs, which can be time-consuming. You may need to manage these tasks yourself or hire someone, adding to your expenses.
Sudden Increase in Expenses: While tenants cover property taxes, you must still pay for other costs like insurance, maintenance, and unexpected repairs. Proper budgeting is essential to prevent these expenses from negatively impacting your earnings.
When to Use a Single Net Lease
Consider using a Single Net Lease if you want more control over how your property is managed. This lease type allows you to oversee repairs and maintenance, ensuring tasks are completed according to your schedule and preferences. Additionally, having property taxes covered by the tenant relieves you from worrying about fluctuations in tax payments.
When Not to Use a Single Net Lease
Avoid a Single Net Lease if you don’t want to handle day-to-day property management. This lease requires you to collect payments, pay insurance, schedule maintenance, and deal with unexpected repairs. If you prefer a hands-off approach, a triple net lease might be a better option, as it shifts more responsibilities to the tenant and frees up your time.
Tips for Investing in a Single Net Lease
Review Lease Details: Every lease is unique, so carefully read the “fine print” to understand your responsibilities and avoid misunderstandings that could lead to disputes.
Inspect the Property: Since you’ll be responsible for repairs and maintenance, it’s crucial to assess the property’s condition. Older properties generally require more upkeep, while newer ones may involve fewer maintenance costs.
Evaluate Your Workload: Consider how much effort you’re willing to invest in managing the property. If you can handle the repairs, maintenance, and insurance, a Single Net Lease might be suitable for you.
Key Benefits of a Single Tenant Net Lease
- The tenant pays property taxes in addition to rent.
- The lease shifts tax-related responsibilities from the landlord to the tenant.
- The landlord retains control over property management, including maintenance.
- Income from rent remains stable despite property tax fluctuations, increasing profitability.
Even after outlining all the information above, leasing commercial real estate can still seem daunting. That’s why the LeveragedCRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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