When deciding whether to make a purchase on a double or triple net lease property, one may ask the question: should I buy something with high or low rents. The answer is pretty simple. A person looking to buy a triple net lease should look to purchase a property with lower rents.
Purchasing properties with low rents is better because the low rent is replaceable if the tenant leaves. And, not only could the rent be replaced, it could also be increased, which would increase the value of the property significantly. On the contrary, high rent is harder to replace. If someone purchases a property with high rent and the tenant vacates, it could end up decreasing the value of the property.
Here is an example of this scenario dealing with low and high rents. We have a client that owned a Verizon wireless store in Columbus, OH. Verizon wireless was paying astronomical rent compared to other tenants in the area. We approached our client and told him he should sell. At first our client was hesitant because he had national credit tenants. However, after careful persuasion, he put his Verizon store on the market, and it sold a few months later.
Did our client make the right decision? Well, four and a half years later, Verizon wireless did NOT renew their lease. They packed up their new iPhones and Motorola’s, and moved a few blocks away to another location where they could pay much less in rent. The property that our client sold stayed vacant for several months, as the new owner didn’t want to lease the property for a significantly lower price. Needless to say, our client made the right decision.