Widen Your Grasp In Leased Investments Investment grade, long term net leases is actually the primary aspect of certain lease structure. Long term on the other hand indicates the general length of lease and the net leases refers to structure of these lease obligations. If you wish to know more about these subjects, then I recommend you to read the next paragraphs. Number 1. Investment Grade – basically, this lease is lease to tenants that maintain credit rating of Better Business Bureau or even higher. The investment rating is then represented by the ability of the company to repay its obligation. BBB is actually representing only good credit rating in line with the agency’s rating. Most of the time, it is only the big and national companies that are able to maintain good credit rating.
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Rating agencies are not monitoring thoroughly franchise and regional tenants. For this, it is ideal that the lease is corporate backed by parent company and isn’t just regional franchisee. There is a significant difference between strength and the credit of regional franchise owner and the 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. Knowing what is obligations and options is very important. 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 a client, you must find out the rent terms and on how long the tenant is obligated to pay because it makes a significant difference when you start considering your 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. Some are even calling it as Triple Net that don’t include expense on roof or structure of the building. These leases are precisely known as modified NNN or double net NN leases.