What Are the Typical Returns from Triple Net Leased Investments?

There are several ways to evaluate the performance of an investment in net leased commercial real estate. One common method is to use the capitalization rate, which is calculated by dividing the property's annual net income by its purchase price.

For net leased properties, cap rates typically range from 5% to 8%, depending on factors such as the creditworthiness of the tenant, the location of the property, and the value of the income stream. In recent years, there has been increasing interest in net leased investments as a stable alternative to the stock market and the residential housing market. This increased demand, along with low interest rates, has contributed to a decline in cap rates over the past decade.

Another way to evaluate the performance of a net leased investment is to use the internal rate of return (IRR). The IRR takes into account various factors such as the income generated by the property, any appreciation in value, the payment of debt (if applicable), the estimated resale value, and the cost of selling the property. For net leased investments, IRRs are typically in the range of 10% to 14% over a period of 10 years. Since November 2012, the yields from net leased properties exceeded those of 10-year US Treasury securities by 467 basis points.

According to market forecasts, net leased commercial real estate cap rates are expected to remain stable in 2023. However, there are several factors that can impact cap rates, including the state of the economy, interest rates, and the overall demand for commercial real estate.

For example, a strong economy may lead to increased demand for commercial properties, which could push cap rates down. On the other hand, if interest rates rise, it may become more expensive for investors to finance purchases, leading to a decrease in demand and an increase in cap rates. It is important for investors to carefully consider these and other factors when making investment decisions in the net leased commercial real estate market.

Credit: Marcus & Millichap

Circle K Gas Station
Florida

• Price: $825,000

• Cap Rate: 7.69%

• NOI: $63,458

• Rentable SQFT: 4,140 SF

• Year Built: 2009

• Lot Size: 2.5 +/- Acres

• Lease Type: Absolute NNN Ground Lease

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