Single Tenant Net Lease Valuation Model

Triple net lease real estate is popular among commercial investors who are looking for properties that are relatively low-risk but offer high returns without a substantial amount of management or oversight as a landlord.

Single tenant net lease properties can be ideal investors with these investment qualifications, because you’re dealing with one property, one long-term tenant (of anywhere from 10 to 25 years depending on the lease) and one set of agreement stipulations between you and the tenant. Multi-tenant net leases, however, tend to more complex since you’ll be dealing with multiple tenants who will potentially all have different terms (and timeframes) outlined in their leases.

As you’re looking into single net lease properties, you may wonder exactly how these types of properties are valued. This post will explain the single tenant net lease valuation model and outline the benefits (financial and otherwise) that you can expect when you invest in single net lease real estate.

How Is the Valuation of Single Net Lease Properties Determined?

Finding the valuation of a single tenant net lease property is important to understanding how much the property is worth, not only on the market, but to you as an investor over the short and long-term. The formula used to determine the valuation of a single tenant net lease property consists of dividing the NOI (Net Operating Income: the amount you expect to make in income on the property, specifically over the first year of your investment) by the cap rate of the listing or:

NOI/Cap Rate = Single Tenant Net Lease Property Value

As an example, let’s look at a property with these details:

Expected NOI: $150,000 in rent payments made over the year

Cap Rate calculated at: 5.50%

Using the valuation model equation, you can use these details to find the value of the property as an investment:

NOI ($150,000)/0.055 = $2,727,272.00 Valuation

While this simple formula will provide a good idea as to the current valuation of the single tenant net lease property, there are many factors that could change the value when you’re looking at the investment from a long-term standpoint. Changes in the market or the area where you buy, or a tenant lease change over could reduce the NOI and change the outlook of your investment.

So while looking at property valuations is an important step in determining the current worth of a single tenant net lease investment, accounting for factors outside the numbers themselves will give you a more accurate picture of what you can expect over time. Net lease advisors, with keen market insight and experience can help you understand current valuations and advise you on how they’ll play out over time as well.

Benefits of Single Tenant Net Lease Real Estate Investments

Single tenant net leases are becoming a more a popular investment choice as the popularity of malls dwindles and due to the many perks they offer for an investor (and a tenant who gets to be the sole business and brand operating in the building).  

Single tenant net lease properties offer a multitude of other benefits for investors as well, including:

  • Low-risk, high-return, low-touch investment opportunity
  • Financing fees and payments can be offset in tenant rent payments
  • Reliable, predictable income stream
  • Low touch management of a single, long-term tenant who is trusted and qualified

Purchasing a single tenant net lease property is a large investment, and one you need to make with careful consideration to the type of business location you’re buying and what type of longevity long-term tenants can create in that location. There are a lot of factors that go into evaluating a single tenant net lease property, and working with a skilled team of advisors such as Sands Investment Group (SIG) can ensure that you have specialized support and guidance every step of the way.

Sands Investment Group is knowledgeable in all types of triple net leases (including single tenant net leases) and have the expertise to ensure that the valuation of your triple net real estate investment is accurate and truly structured to provide you with returns in the long-run (not just the short-term). Our skilled advisors can guide you through the process of finding and financing your next best investment (in fact, we’re the fastest growing net lease investment company in America, with over 1,700 transactions in 48 states (to the tune of $4 Billion) since 2010.)

Want to learn more about NNN properties for sale and speak with an industry expert about financing a single tenant net lease property? Get in touch with an expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.

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