For investors in commercial real estate, there are several aspects to keep in mind, such as the profit margins, the economic climate, the level of involvement of the owner, and the risk assessment, especially when buying single-tenant or multi-tenant assets.
A clear representation of the drawbacks and the perks of each type of property is essential for moving forward with a substantial purchase.
This article will cover the risks, obligations, and income revolving around investing in single-tenant or multi-tenant properties.
In most cases, a single-tenant property will be occupied by an investment-grade company with a NNN lease. These are usually consumer-centered venues in the most profitable locations and are positioned to do well in changing economic climates. This reduces potential shifts in the value, making such assets lower-risk, recession-resistant, and adversity-proof businesses.
Walgreens, Taco Bell, 7-Eleven, and Dollar General are prime examples of single-tenant properties.
Single-Tenant Property Pros
Regarding the benefits of a single-tenant property, they are abundant, especially if the asset is leased under an NNN lease agreement:
- Simple, straightforward investment;
- Little to no owner responsibility;
- Operating on absolute NNN leases;
- Tenants are solely responsible for their taxes, insurance, and maintenance;
- Cap rates of 5–7% with a possible IRR of 8–10%;
- Possibility for building equity over the lease term;
- Steady, passive income;
- Lower-risk investment.
Single-Tenant Property Cons
Even though the cons related to single-tenant assets are minuscule compared to the pros, the cons are mainly shaped according to your preferences and goals.
- No landlord involvement;
- Limited say in the maintenance or repairs on the property;
- An “all-or-nothing” risk of occupancy, especially if you own a single asset;
- Less liquid than other types of investments.
As opposed to single-tenant properties, multi-tenant ones are occupied by more than one tenant.
Such multi-tenant properties are usually in the form of apartment complexes, retail centers, shopping malls, industrial warehouses, multi-family living spaces, healthcare centers, and office spaces.
Multi-Tenant Property Pros
Just like the single-tenant properties, the multi-tenant ones also come with perks, like:
- Multiple sources of income;
- Vacancy risk spread among multiple tenants; Tax depreciation;
- Business deductions;
- Increased rental income and up to 9% cap rate.
Multi-Tenant Property Cons
Unlike single-tenant properties, multi-tenant assets are somewhat riskier and demand more active management with capital investments regarding upkeep and repairs.
- Income might be less consistent and reliable;
- Higher maintenance costs;
- Less Unpredictable expenses;
- More bookkeeping and landlord involvement; Varied leases can be more complex to manage.
Which Is Better: Single-Tenant or Multi-Tenant Commercial Properties?
The bottom line with both types of commercial properties is that success is possible, and it will mostly depend on the investor’s skills to manage risks and perform substantial due diligence.
The responsibilities surrounding single-tenant properties fall onto the lessee, so there’s very little for the investor to deal with, while multi-tenant properties demand more hands-on attention.
Profit-wise, multi-tenant commercial properties deliver income from more than one source. The vacancy risk is split among multiple tenants occupying the property instead of a single-tenant property.
Contact Brisky Net Lease to Learn More About Your Options
If you’re still on the fence about choosing where to invest your money, you can’t go wrong if you contact Brisky Net Lease. Our team has years of expertise in the triple net industry and is extremely client-focused, aiming to provide the best customer experience.
We offer a full-scale buyer and seller representation as well as different services like off-market opportunities, NNN investments, and more. Get in touch today.