Credit Tenants
One way to spend less time managing your properties is to lease to national credit tenants. Unlike local “mom & pop” tenants, national creditworthy tenants typically pay rent on time, understand the process of reimbursables for taxes, insurance and maintenance, and they add value when you refinance or sell.
Triple Net (NNN) Leases
Triple Net leases are typically used in retail properties and provide for the tenants to reimburse the landlord their pro rata share of real estate taxes, insurance and operating expenses for common area maintenance (also known as CAM). These are usually much better for landlords as they provide a hedge against inflation and unforseen increases in expenses required to manage a property.
Hire a Property Manager
Unless you enjoy collecting rent, making repairs or handling complex accounting, you should consider hiring a professional property management company. In addition to taking care of collecting rent and paying the bills, they often get better pricing from contractors who handle other accounts for the management company. Most management firms also offer a leasing service to integrate the relationship between management and leasing all in one company.
Important Considerations for When
You Sell
Many investors look at the “cap rate” of a property when making an offer. The cap rate is the percentage rate of return the buyer will realize on the price they pay. This is calculated by dividing the net operating income (NOI) by the price. The net operating income is the amount the landlord receives after deducting all operating expenses (not mortgage payments or depreciation) from the gross income.
But much more goes into developing a cap rate than just the NOI divided by the price. Other key factors include: are the tenants credit tenants?, is there deferred maintenance?, and most importantly are the rents being paid above or below market rate?
So, it is very important to ensure there is no deferred maintenance, leases are up to date with market rents, and all of the tenants have a good track record of payment when you prepare to take a property to market.
