Should I Consider Out-of-State Triple Net Lease Investments?

Should I consider out-of-state Triple Net (NNN) Lease investments?

I maintain a database containing hundreds of single tenant net lease properties.  In preparation for this article I went to that database to pull information on two comparable single tenant triple net lease properties, both currently on the market.  Let’s look at the results:

Property A

Property B

Tenant: Dollar Tree Dollar Tree
Guarantor: Corporate
(BB+ credit, $21B market cap)
Corporate
(BB+ credit, $21B market cap)
Price: $2,950,000 $2,450,000
Cap Rate: 4.35% 6.25%
NOI: $128,000 $153,000
Remaining Lease Term: 7 years 10 years
Square Feet: 7,750 14,000
Acreage: 0.30 2.15
Year Built: 1950 2008
Demographics: Strong Strong
Visibility, Access, Traffic: Good Good

Both properties are guaranteed by a $21 billion dollar investment grade company and they both have strong demographics, good visibility and access.  Property A has a lower Net Operating Income than Property B ($25,000/year less), shorter term on the lease (3 years less), much smaller building (6,250 sf less), a lot less land (1.85 acres less), was built 58 years earlier and is still selling for $500,000 MORE than Property B.  Why such a difference?  The answer primarily comes down to location.  Property A is located in Los Angeles, CA and Property B is located in Las Vegas, NV.

Dollar Tree Net NNN LeaseIn this case I’m not suggesting one property is better than the other.  Both properties ARE well located within their respective markets, but “good location” is a relative term.  The Los Angeles property can command a lease rate close to $16.50/sf because of its “location” while the Las Vegas property is close to $11/sf.  The Los Angeles property will sell for close to a 4.35% cap rate while the Las Vegas property is selling for a 6.25% cap rate.  If I was representing a buyer that was considering these two options, my recommendation would come down to the goals and objectives of the buyer.  Is the buyer looking for a maximum return or is stability more important to them?  How long is the buyer planning on holding onto the property?  Are they looking for long term growth or cash flow?  Etc.

Retiree wanting passive incomeOne of the beautiful things about single tenant triple net (NNN) lease investing is the buyer definitely CAN consider out-of-state investments.  Well located properties with strong guarantors and absolute net leases can be hassle free no matter which state they are located in.  As the above example shows, a buyer living in Southern California, but wanting maximum cash flow, may very well consider single tenant NNN investments in other states. Because these type of investments, when purchased right, are essentially hassle free, they provide the buyer this opportunity. No need for a property management company and no need to do regular site visits.

In addition, states such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming are income tax free and may provide additional tax benefits for you to consider.  Property taxes tend to be higher in these states, but because the investment is a single tenant triple net (NNN) lease the TENANT is responsible for paying the higher property taxes thus passing onto the property owner all of the tax benefits of investing in property in a state without income tax expenses.

Have I mentioned before that I love single tenant triple net lease property?

 

For additional information about investing in single tenant triple net lease property, please visit the NNN Resource Center.

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *