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What Is A Leased Investment? Investment grade, long term net leases means the primary aspect of a certain lease structure. Investment grade means the quality of tenant to which the lease is made. In relation to long term however, this means the length of lease in general while the net leases means the structure of these lease obligations. Learn more about these subjects by reading the next lines. Number 1. Investment Grade – this lease is basically lease to tenants that are maintaining a credit rating of Better Business Bureau or even higher. The rating investment is being represented by the company’s ability to repay its obligations. BBB is representing good credit rating according to the agency’s ratings. Most of the time, only bigger, national companies are able to maintain good credit rating.
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Both franchise and regional tenants are actually small for the rating agencies to monitor. For this, it is important that the lease is corporate backed by parent company and isn’t just regional franchisee. There’s a huge difference between the strength and credit of regional franchise owner and the actual corporation itself. Corporate parent will generally provide better rent stability in midst of economic downturn while rent stability is equivalent to improved stability for the price and value of your real estate.
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Number 2. Long Term – most of the time, long term means fixed length obligation in lease term or beyond ten years. There are instances to which the lease option is included by advisors or brokers as part of fixed lease term. It is vital to distinguish between obligations and options. Say that the tenant for example has an option to renew additional 5 years after the initial 5 year term, the term then should be considered as 5 year lease with additional 5 years in option and not a 10 year lease. As being a client, it is your job to learn about the rent terms and on how long the tenant is obligated to pay as it can make a big difference as soon as you start considering returns, risks, ability to acquire financing and also your ability to resell property for profits. Number 3. Net Leases – there are two types of leases wherein it’s the tenants who are responsible for operating expenses which include the structure, insurance and the roof and these are Double Net or NN and Triple Net or NNN leases. In pure NNN lease, it is covering such cost through term of lease is called also as absolute NNN lease. Then again, there are those who call it as Triple Net that don’t include expense on roof or structure of the building. These leases are known precisely as modified NNN or double net NN leases.